ECONOMIST QUESTIONS IMPACT OF ZERO-RATE EXPANSION

MBABANE - Economist Sanele Sibiya has questioned the effectiveness of the expanded zero-rated list, arguing that it will do little to ease the burden on consumers.

“This expansion of zero-rated products is neither here nor there, because the cost of living is already high while salaries and wages remain stagnant,” he said.

Sibiya argued that despite inflation seemingly slowing down, consumers are still struggling. He explained that while inflation refers to the rate at which prices increase, the cost of goods itself is not decreasing.

“The minister should have held back on the VAT increase instead of being rushed by South Africa’s developments. It is possible to have different tax regimes with South Africa; it would just be a tedious process when it comes to trade between the two countries,” he said.

The economist further pointed out that consumers are already burdened by the high cost of electricity, which is expected to increase further following the recent approval of an 8 per cent tariff hike for the Eswatini Electricity Company (EEC).

“The timing for this VAT hike is not right, especially for consumers who are already struggling with rising costs,” Sibiya emphasised. The proposed changes come at a time when regional economies are grappling with inflationary pressures and rising living costs. The move to expand zero-rated goods is expected to bring some relief to consumers, though the taxation of condensed milk may generate debate among stakeholders.

Increase

It is worth noting the South African Government has outlined several key reasons for this phased VAT hike. For South Africa, the incremental VAT increase is projected to generate an additional R28 billion in the 2025/26 fiscal year and R14.5 billion in 2026/27.

These funds are essential to address persistent spending pressures in critical health, education, transport and security sectors.

An additional R28.9 billion has been earmarked for health services, notably to support the country’s extensive HIV-positive population. This increase aims to pay the salaries of medical personnel and newly-qualified doctors.

R5 billion is allocated to bolster military forces amid escalating regional conflicts, reaffirming South Africa’s commitment to peacekeeping in the region as fighting intensifies in eastern Congo.

Recognising the regressive nature of VAT and its potential impact on lower-income households, the South African Government has proposed several mitigating measures:

To assist poor households, the basket of items that are zero-rated for VAT will be expanded to include specific edible offal, specific meat cuts, unflavoured dairy liquid blends and specific canned vegetables.

Social grants will receive above-inflation increases to provide additional support to vulnerable populations and help offset the impact of the VAT hike.

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