Considering the efficacy of value-added tax zero-rating as pro-poor policy: The case of South Africa. Issue 1 (2nd January 2017)

• Record Type: Journal Article
• Authors: Jansen, Ada; Calitz, Estian
• Is Part Of: Development Southern Africa. Volume 34:Issue 1(2017)
• Page Start: 56
• Page End: 73
• Publication Date: 2017-01-02
• Subjects: Value-added tax -- zero-rating -- South Africa -- poor households -- cost-effectiveness; H22 -- H23; Economic development -- Africa, Southern -- Periodicals; Africa, Southern -- Economic conditions -- Periodicals; 338.90096805
• DOI: 10.1080/0376835X.2016.1269635
• Languages: English
• ISSNs: 0376-835X

Abstract

ABSTRACT: The use of value-added tax (VAT) zero-rating has become widely accepted internationally to mitigate the regressivity of the tax. From an economic perspective, it remains contestable whether VAT zero-rating is the most cost-effective way of targeting the poor. This article addresses some topical issues on VAT zero-rating in South Africa. We first ask whether (conceptually) zero-rating should be a consideration within the context of tax theory literature, and then quantify the impact on the poor if zero-rating was to be removed, as well as the tax revenue implications thereof. We compare the cost of VAT zero-rating with the benefit, using data sourced from the Income and Expenditure Survey 2010/11 and the Estimates of National Expenditure. Our findings show that VAT zero-rating (compared with existing social transfer programmes) is not cost-effective when targeting the poor.