Treasury crunching numbers in case zero VAT list widens revenue gap

If there is a revenue gap caused by additional zero-rated VAT items, then National Treasury will either have to adjust expenditure, or raise taxes in the mid-term budget, Parliament has heard.

Speaking to the Standing Committee on Finance on Thursday, Treasury's head of tax and financial sector policy, Ismail Momoniat, briefly addressed questions relating to the findings of the expert panel on the zero-rated value-added tax items.

• READ: Expert panel recommends white bread, school uniforms be zero VAT rated

In the report released by Treasury on August 10, the panel had recommended that white bread, bread and cake flour, sanitary products, school uniforms and nappies be zero-rated.

The panel also suggested that Treasury should find ways to make sure that the benefits of the zero-rating could not be 'captured' by producers.

The panel further said this could result in lost tax revenue of R4.8bn.

Momoniat told the committee that apart from considering the panel’s report, Treasury was also working on its own estimates to determine if the revenue gap would only be R4.8bn if all items were included, or if there could be an upside risk of additional amounts.

Momoniat said that the big issue of the revenue gap would most likely be dealt with in the medium-term budget. The minister may announce expenditure adjustments, or tax adjustments if there is a gap, he said.

• READ: Cosatu: Further VAT exemptions may not benefit the poor

Tertius Troost, senior tax consultant at Mazars South Africa, told Fin24 earlier this week that the additional zero-rated items would most certainly impact revenue.

"It could be a concern. VAT was raised to close the budget deficit. Now we’re going the other way, so the hole won’t be plugged."

Troost said the mid-term budget or the National Budget next year may include more details of how to fill the gap. Troost suggested that Treasury might not accept all six recommended items, which might lessen the impact on revenue.

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