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Improving the targeting of zero-rated basic foodstuffs under value added tax (VAT) in South Africa - An exploratory analysis

Author

Listed:
  • Ada Jansen

    (Department of Economics, University of Stellenbosch)

  • Elizabeth Stoltz

    (Department of Economics, University of the Western Cape)

  • Derek Yu

    (Department of Economics, University of Western Cape)

Abstract

VAT without any exemptions or zero-rating is regressive. Since the inception of VAT in South Africa, there has been an ongoing debate around the issue of zero-rating to alleviate the burden on poor households. This paper uses vegetables as an example and conducts tax incidence analyses to compare the relative burden of VAT on vegetables for various income groups. It finds that differential treatment of the zero-rating of VAT on various categories of vegetables could be beneficial in terms of relative equity gains. It is suggested frozen vegetables remains zero-rated, whereas canned vegetables and some fresh vegetables items be zero-rated.

Suggested Citation

  • Ada Jansen & Elizabeth Stoltz & Derek Yu, 2012. "Improving the targeting of zero-rated basic foodstuffs under value added tax (VAT) in South Africa - An exploratory analysis," Working Papers 07/2012, Stellenbosch University, Department of Economics.
    • Handle: RePEc:sza:wpaper:wpapers159
    as

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    File URL: https://www.ekon.sun.ac.za/wpapers/2012/wp072012/wp-07-2012.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Richard M. Bird, 2008. "Tax Challenges Facing Developing Countries," Working Papers id:1618, eSocialSciences.
    2. Servaas van der Berg, 2009. "Fiscal incidence of social spending in South Africa, 2006," Working Papers 10/2009, Stellenbosch University, Department of Economics.
    3. Ms. Sònia Muñoz & Stanley Sang-Wook Cho, 2003. "Social Impact of a Tax Reform: The Case of Ethiopia," IMF Working Papers 2003/232, International Monetary Fund.
    4. Alderman, Harold & del Ninno, Carlo, 1999. "Poverty Issues for Zero Rating VAT in South Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 8(2), pages 182-208, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Sandra Boatemaa Kushitor & Scott Drimie & Rashieda Davids & Casey Delport & Corinna Hawkes & Tafadzwanashe Mabhaudhi & Mjabuliseni Ngidi & Rob Slotow & Laura M. Pereira, 2022. "The complex challenge of governing food systems: The case of South African food policy," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 14(4), pages 883-896, August.

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    More about this item

    Keywords

    Value added tax; expenditure patterns; regressivity; zero-rating; equity gain; optimal targeting; basic foodstuffs; sub-categories of vegetables; South Africa;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

    NEP fields

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