A proposed 2% VAT hike from 15% to 17%, unveiled in Finance Minister Enoch Godongwana’s postponed Budget speech, has ignited fierce debate, with farming associations decrying economic strain and the Pietermaritzburg Economic Justice & Dignity Group (PMBJED) warning of deepening poverty—though some see a sliver of hope in expanded zero-rated food relief.
The government pitched the increase alongside plans to shield the vulnerable by zero-rating more food items, including sheep, poultry, goat, and swine products. Yet, the move has split opinions sharply.
Mervyn Abrahams, the Programme Coordinator of the (PMBJED), said the proposal to increase the VAT rate by 2% (from 15% to 17%) is likely to have severe affordability consequences, particularly for low-income families and small businesses. “This is likely to deepen poverty, inequality, and injustice, with a potential for increased social fallout and even slower economic growth.”
Abrahams added that using the PMBJED’s latest January 2025 price data:
– A 17% VAT rate will increase a basic basket of household groceries by R375, with the total basket increasing to R5 478.
– A 17% VAT rate will increase a basic basket of household toiletries and domestic products by R155, with the total toiletries increasing to R1 064.
– A 17% VAT rate will increase a household’s basic 350kWh consumption of electricity by R153 to a total of R1 196 (we included Eskom’s 12.7% increase of R116, which will come into effect in July).
Abrahams said South African households are highly exposed to VAT.
“VAT takes a significant amount of money out of our pockets, money which could be better spent in the home, to ensure healthier, more productive school children, and workers in the workplace, and a more secure and stable society, and a more vibrant economy. Money is tight. We need as much of it in our pockets as we can keep, and then choose to use it locally and smartly.”
Izaak Breitenbach, the general manager of the South African Poultry Association (Sapa), said it is important for poultry products to be VAT zero-rated as set out in their VAT application to the Treasury.
“The government had the opportunity to give significant relief to the poor but chose to limit the cost to the fiscus and the benefit to the poor. Zero-rating frozen bone-in portions and both fresh and frozen offal would have gone a long way in addressing malnutrition (protein shortage) in a country where 26% of children are severely malnourished.This is what the government set out to do to assist the poor. Then government must make a tangible contribution to the poor in zero rating food items”
Breitenbach added that it would negatively impact the poultry industry if VAT was increased from 15% to 17%. “This would be bad for the poultry industry since the industry already experiences a lot of consumer resistance on price. The per capita consumption of chicken has reduced due to prices being unaffordable for many poultry meat consumers.”
Meanwhile, Dewald Olivier, the CEO at the Red Meat Industry Services, said there are issues with having red meat products VAT zero-rated.
“We are not supportive of products that are zero-VAT rated due to the additional burden it places on the industry and government to regulate and police it. However, if there are certain items that are zero-rated, it needs to include all animal proteins and not only certain ones.”
Furthermore, Olivier was concerned about the impact a 2% increase in VAT will have.
“We would like to see the Government of National Unity effectively manage the current tax received. An increase in VAT will have a negative impact on our product, and we are not convinced that they have investigated all the possible avenues to ensure the Budget works,” he said.
Olivier said South African consumers need an affordable basket of food.
“We also are very aware of the need for nutritional food to be affordable. Again, we would like to see that if more animal protein products are included, products of all species should be considered. It might seem unimaginable, but animal protein products compete directly at the lower end of the consumer’s buying power with each other,” he added.
Anthony Clark, an independent analyst at SmallTalkDaily @smalltalkdaily, said on x examined the implications of the government’s proposed plan to expand the basket of VAT zero food items to include tinned vegetables, dairy liquid blends, and variety of meat products from sheep, poultry, goat and swine.
He said chicken, as one category, is a R4 billion cost.
“It’s a lot and that sum could easily be spread around other food items though chicken is the largest consumed affordable protein so there would be a wide lower consumer benefit,” he said.
The beneficiaries should this be approved would be the chicken stocks Astral Foods and Rainbow Chickens
In canned meats, Rhodes Foods with their leading Bull Brand products would be a winner alongside Tiger Brands with their Koo vegetables
“Oceana Group who has the leading brand Lucky Star, which is VAT-zero rated, may see increased competition from more protein categories being added to zero-rated basket,“ Clark said.
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