New VAT-Free Food Items Announced
The South African government has taken another step to help ease the financial burden on lower-income households by expanding the list of VAT-free food items. Finance Minister Enoch Godongwana made the announcement during his budget speech in Cape Town, revealing that additional food products would be zero-rated from 1 May 2025. However, while this move aims to make essential foods more affordable, not everyone is convinced that it will effectively reduce food prices for struggling households.
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What New Food Items Are VAT-Free?
From 1 May 2025, the following food items will be exempt from Value-Added Tax (VAT):
- Edible offal of sheep, poultry, goats, swine, and bovine animals
- Specific cuts such as heads, feet, bones, and tongues
- Dairy liquid blend
- Tinned or canned vegetables
The decision to include these items is based on data from the 2022/23 Income and Expenditure Survey, which highlighted high consumption of these products among the lowest four expenditure deciles. The government estimates that these VAT exemptions will cost around R2 billion in lost revenue.
Criticism from the Poultry Industry
Despite the government’s attempt to provide relief, industry stakeholders are skeptical. The South African Poultry Association (Sapa) has criticized the list, saying it lacks clarity and does not go far enough.
Sapa CEO Izaak Breitenbach stated that the budget speech did not specify whether products like poultry hearts and livers are included. Additionally, the poultry industry had previously requested that frozen bone-in portions be added to the VAT-free list, but this request was ignored.
“Frozen bone-in portions were not included, which is problematic for us. If both frozen bone-in portions and offal were included, it would have stimulated increased production on the back of increased consumption. With only offal included, it will merely stimulate offal imports,” Breitenbach explained.
However, he acknowledged that adding offal to the list would make it more affordable for lower-income consumers and provide access to cheaper protein sources.
Will This Reduce Food Prices?
One of the biggest concerns surrounding the VAT exemption is whether it will actually lead to lower food prices for consumers. While the government insists that this is an effort to make food more affordable, they also admit that there is no guarantee that retailers will pass the savings on to consumers.
The Treasury stated:
“Zero-rating is a blunt tool to assist lower-income households, because there is no guarantee that there will be a reduction in prices.”
Furthermore, zero-rating often benefits higher-income households as well, rather than solely targeting the poor. This means that while lower-income consumers may see some relief, wealthier consumers could also take advantage of the tax exemption, diminishing its intended impact.
A Step in the Right Direction or a Missed Opportunity?
While the VAT-free expansion is a step toward addressing food affordability, critics argue that it is not comprehensive enough. With food prices soaring due to inflation and economic challenges, South Africans are looking for more sustainable solutions to reduce the cost of essential groceries.
The exclusion of frozen bone-in chicken portions is a missed opportunity, as poultry is one of the most widely consumed protein sources in South Africa. Expanding the VAT-free list to include these products could have had a much greater impact on food security and affordability.
The addition of VAT-free food items may offer some relief to lower-income households, but it does not fully address the broader issue of rising food costs. With industry experts raising concerns about its effectiveness, the government may need to consider more targeted interventions to ensure that the benefits reach the intended consumers.
