The South African poultry industry is pushing for the removal of the 15% value-added tax (VAT) on chicken products, focusing on the benefits for the country’s poorest citizens.
In an interview with ChickenFacts, Charles de Wet, a tax executive at ENS Africa, provided insights into the potential impact of the VAT-free chicken initiative.
The submission, being prepared on behalf of the SA Poultry Association (SAPA) and the Association of Meat Importers and Exporters (AMIE) aims to have zero-rated chicken included in next year’s VAT-free basket. The is submission expected to be finalised and submitted to the National Treasury by mid-November.
The proposal will likely advocate for the removal of VAT from all frozen bone-in chicken and chicken offal, which includes feet, heads, and livers—products favoured by low-income households. The application will exclude cooked chicken and value-added products like crumbed, marinated, or spiced chicken pieces, as well as tinned chicken.
Impact on Low-Income Households
“The objective must be that households will pay 15% less for the chicken products that qualify for the zero rating,” said de Wet. “If we get this right and we get the monitoring right, then it should cost them 15% less.” De Wet emphasised that this initiative aligns with President Cyril Ramaphosa’s July announcement of the government’s proposal to expand on its basket of zero-rated food items. Chicken, being the primary source of meat protein for lower-income households, accounts for 66% of all meat consumed in South Africa.
Ensuring Savings for Consumers
De Wet explained that the competitive nature of the chicken market would help ensure that savings are passed on to consumers. “There are enough players in the market that will make sure that benefit is passed on,” he noted. He emphasized the importance of credible monitoring, mentioning existing reports by the Competition Commission and Stats SA on food prices.
Boosting the Poultry Industry
De Wet explained that ongoing research supports the argument for VAT-free chicken. “The argument is very much based on the need for additional protein,” he stated. He emphasised the importance of protein in diets and how removing VAT on chicken would provide both economic and health benefits.
De Wet elaborated that lower prices would lead to increased volumes, higher demand, and greater efficiency for producers. “Economic principles would say that because of lower prices, volumes will increase, which will have an impact on producers,” he explained. This growth in the industry would potentially result in increased income and profits, contributing positively to the South African economy.
Addressing Treasury Concerns
A recent BusinessTech article reports that Deputy Finance Minister David Masondo has expressed concerns about expanding the zero-rated VAT list.
While these products effectively support those in need, Masondo highlighted the potential for significant VAT revenue losses with further additions.
He suggested it might be more beneficial to allocate funds to existing government programmes designed to assist low-income individuals. Masondo estimated that current VAT exemptions result in over R30 billion in lost revenue annually. Given that VAT contributes 26% of total tax revenue, further exemptions could have considerable fiscal impacts.
He also argued that direct cash transfers to low-income households might be more effective than VAT exemptions, which often benefit higher-income households disproportionately. This, however, opens a debate around social grants, the current inefficiencies of this system and the maladministration and corruption that easily creep in where cash is involved.
Addressing the projected revenue loss from the VAT exemption, de Wet estimated it to be less than R5 billion, a relatively small percentage of the total VAT and tax collections. “We don’t think that is a big number if you compare it to the total VAT collected,” he argued. He noted that the revenue collection up to August 2024 was 19% up on prior years, indicating a strong fiscal performance.
The submission to the National Treasury will include a cost-per-gram comparison for chicken and other protein sources, highlighting the economic benefits of removing VAT.
Impact on the Red Meat Industry
De Wet predicted minimal impact on the red meat industry, noting that any short-term shifts in consumer preference due to price sensitivity would not significantly disrupt the market. “People may choose slightly different products depending on their price point and disposable income, but I don’t anticipate significant disruption.”
Expected Response Timeline
De Wet anticipated that the National Treasury would likely respond according to the typical budgetary process. “One would hope that by getting the submission in now, there would be an announcement by the minister in February,” he said. De Wet anticipates that the Treasury will review the application and make a recommendation to the Minister of Finance without the need for an expert panel review, as was done in 2018.
If the submission is successful, it is our hope that the 15% saving will be passed down the value chain to benefit lower-income consumers, who heavily rely on affordable access to this essential protein in these challenging times.
In the meantime, ChickenFacts remains committed to tracking developments and will continue to offer fact-checked updates on the VAT-Free chicken initiative.
