Mitigating the impact of the VAT increase: can zero-­‐rating help?

The report analyzes the regressive nature of the 2018 VAT increase in South Africa, which reduced disposable income for poor households. It evaluates existing zero-rating as generally effective and proposes 23 new categories for zero-rating—including baby food, school uniforms, and public medical services—to support vulnerable groups, particularly female-headed households. The report estimates that while expanding zero-rating would cost R17bn in revenue, a 25% luxury VAT rate on high-end goods could recover approximately R9.6bn of that loss.

• The April 2018 increase in Value Added Tax (VAT) from 14% to 15% reduced the disposable income of all South Africans and made the tax mix more regressive, particularly when combined with rising fuel prices.
• Existing VAT zero-rating is generally an effective pro-poor measure; for approximately two-thirds of zero-rated items, the poorest 70% of the population receive more than 70% of the financial benefits.
• The report identifies 23 categories of goods and services as ideal candidates for additional zero-rating to support poor households and socio-economic rights. These include baby food, infants' and children's clothing (including school uniforms), sanitary towels, tampons, and medical services in public institutions.
• Expanding zero-rating would provide significant benefits to vulnerable demographic groups, specifically female-headed households, youth, and pensioners. Between 50% and 60% of the proposed items benefit poor women more than the rest of the population.
• Under a 'general test' (covering the lowest seven deciles), the total benefits of zero-rating the 23 proposed categories (R10.5bn) outweigh the costs of revenue lost to the top three deciles (R6.5bn), resulting in a benefit-cost ratio of 1.61.
• Implementing a 25% luxury VAT rate on items predominantly consumed by the wealthiest (decile 10), such as high-end vehicles, aircraft, and luxury hotel stays, could generate approximately R9.6bn in additional revenue.

APA

Njozela, L., & Isaacs, G. (2018). Mitigating the impact of the VAT increase: can zero-­‐rating help? Institute for Economic Justice. https://iej.org.za/wp-content/uploads/2019/05/Mitigating-the-impact-of-VAT-increase-by-extending-zero-rating-IEJ-report-09-08-18.pdf

Chicago

Njozela, Lindokuhle, and Gilad Isaacs. Mitigating the impact of the VAT increase: can zero-­‐rating help? Institute for Economic Justice, 2018. https://iej.org.za/wp-content/uploads/2019/05/Mitigating-the-impact-of-VAT-increase-by-extending-zero-rating-IEJ-report-09-08-18.pdf.

Wikipedia

{{cite report |last1=Njozela |first1=Lindokuhle |last2=Isaacs |first2=Gilad |title=Mitigating the impact of the VAT increase: can zero-­‐rating help? |publisher=Institute for Economic Justice |date=August 2018 |url=https://iej.org.za/wp-content/uploads/2019/05/Mitigating-the-impact-of-VAT-increase-by-extending-zero-rating-IEJ-report-09-08-18.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{njozela2018mitigating, author = {Njozela, Lindokuhle and Isaacs, Gilad}, title = {{Mitigating the impact of the VAT increase: can zero-­‐rating help?}}, institution = {Institute for Economic Justice}, year = {2018}, month = aug, url = {https://iej.org.za/wp-content/uploads/2019/05/Mitigating-the-impact-of-VAT-increase-by-extending-zero-rating-IEJ-report-09-08-18.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }