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  • VAT Exemption of “Essential Goods”. Does that mean more disposable income for consumers?
Articles:

VAT Exemption of “Essential Goods”. Does that mean more disposable income for consumers?

15 April 2020

By: Bonolo Seloadi , VAT Consultant |

While a number of consumers seem to anticipate some sort of financial relief during the COVID-19 pandemic from the announcement SARS made on 27 March 2020, exempting imported “essential goods” as defined from VAT, it is important to note that the relief is only on the importation of the goods and not on the local supply.

We also need to understand whether the imported essential goods, form a part of our day to day purchases.

Essential Goods are listed as being:

  1. Food
    • Any food product, including non -alcoholic beverages;
    • Animal food; and
    • Chemicals, packaging and ancillary products used in the production of any food product.
  2. Cleaning and hygiene products
    • Toilet Paper, sanitary pads, sanitary tampons, condoms;
    • Hand sanitiser, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment; and
    • Chemicals, packaging and ancillary products used in the production of any of the above.
  3. Medical
    • Medical and Hospital Supplies, equipment and personal protective equipment; and
    • Chemicals, packaging and ancillary products used in the production of any of the above.
  4. Fuel, including coal and gas
  5. Basic goods, including airtime and electricity

It might seem as though the majority of the day to day products consumers use are listed as essential goods, but it doesn’t necessarily mean that consumers are now exempt from paying VAT on all these items. As indicated, the exemption only applies to the importation of the essential items into South Africa and the local supply is still subject to the normal rules.

Let’s take a look at tissue paper. Most of the tissue paper consumed in this country, is actually produced by South African manufacturers. Ordinarily, or pre the COVID-19 pandemic, tissue paper was not regarded as a supply exempt from VAT, and was therefore, levied at 15%. Thus all tissue items sitting on the shelves of retails stores, will still be levied for VAT at 15%.

According to the Minister of Agriculture, Land Reform and Rural Development, Thoko Didiza, South African farmers are currently producing enough food for the country. The agri-sector is considered an essential service and is therefore exempt from the lockdown.  The department has allocated a budget of R1,2 billion to assist small scale farmers, to mitigate food security and increase food production by supporting financially distressed small-scale farmers.

It follows that the majority of day to day essential items consumed by ordinary individuals are not necessarily imported, but instead produced in South Africa.

In addition, it is important to note that the basic foodstuffs and agricultural products included in Schedule 2 to the VAT Act are already exempted from VAT on importation. The local supply of those goods are generally also zero rated for VAT purposes and would therefore not result in a financial relief for the man on the street.
As the exemption also relates to Customs Duties which importers can not claim back similar to VAT, it will result in a relief for importers. This will only be applicable where the goods are subject to Customs Duties due to the tariff heading it is imported under. Whether the importers will pass on these savings is questionable especially in these tuff economic times.

Unfortunately, the exemption of the importation of “essential goods” was introduced by Government as a result of the COVID-19 pandemic does not necessarily have a significant impact on the pockets of the ordinary resident.

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