In a recent interview with ChickenFacts, Charles de Wet, Tax Executive at ENS Africa, shared his expert insights on the newly proposed zero-rated food items, focusing particularly on the classification of meat offal products.
While promising, the proposal presents several inconsistencies that could affect various stakeholders, including producers, retailers, and consumers.
Inconsistencies in the Definition and Interpretation of Edible Offal
De Wet highlighted primary inconsistencies within the draft bill, where different definitions and terminologies for meat offal could lead to significant confusion.
The draft bill’s interpretation of what constitutes “edible offal” under the Agricultural Products Act raises significant inconsistencies.
While the Agricultural Products Act provides a general definition of edible offal, De Wet noted that “when SARS interprets these zero-rated provisions, they reference the Agricultural Products Act.”
However, he pointed out that the draft legislation often extends beyond this definition by “adding selective words as well.”
1. Definitions for Various Animals
The legislation inconsistently categorises offal for different animal species:
- For domestic cattle, sheep, pork, and goats, the legislation includes items such as “livers, hearts, kidneys, soup marrow bones, tails, ears, tongues, intestines, clean tripe, heads, and trotters.” De Wet remarked that “soup marrow bones are typically not offal,” suggesting a deviation from the usual understanding of edible offal.
- For chicken, the included items differ significantly, listing “heads, feet, giblets, and cleaned intestines.” De Wet noted that the term “giblets” seems to encompass “livers, hearts, and kidneys as well,” though he acknowledged that “there’s no certainty as far as that’s concerned.”
2. Disparity in Terminology
De Wet highlighted inconsistencies in terminology, particularly the differences between “intestines and clean tripe” versus “cleaned intestines”, which complicates the interpretation of what is included under offal across species.
3. Omission of Certain Items for Chicken
Another inconsistency is the exclusion of “soup marrow bones” for chicken, which are included for other animals. De Wet emphasised that these definition points are critical, as they distinguish how offal is categorised among different species.
The potential misclassifications are a concern for compliance and pricing. According to de Wet, “There’s a substantial risk as to whether a particular item is zero-rated or not. Retailers might charge VAT on items they’re unsure about, making them more expensive for consumers.”
Addressing these inconsistencies is crucial for ensuring clarity and fairness in tax and regulatory frameworks.
Legislative Amendments
De Wet also mentioned the need for legislative clarity, emphasising, “There needs to be more cognisance taken of the definitions in the Agricultural Products Act to avoid uncertainty.” He noted that the current draft bill requires amendments to ensure proper implementation by the proposed start date of May 1st, 2025.
The National Treasury has requested public comments on the draft bill by the end of March. However, De Wet raised concerns about the timeline for implementing the amendments.
“If any changes are made, it will need to be referred back to the Standing Committee on Finance. This raises concerns about whether there will be sufficient time to provide clarity on which products should be subject to VAT by the 1st of May,” De Wet noted.
Passing Down Discounts
When asked whether retailers would pass down the zero-rated discounts to consumers, de Wet expressed confidence based on past experiences with zero-rated items, such as sanitary pads in 2019. He stated, “The price decreased by 15 percent and remained so. Market forces will push retailers to pass down the discounts.”
VAT Rate Increase
De Wet expressed concerns about the VAT rate increase, particularly its timing and the legislative support required. “Having two increases within a 12-month period is problematic for businesses and households. It creates a lot of uncertainty in the market,” he remarked.
As for alternative methods to increase revenue, de Wet agreed that the rate increase is the best course but suggested a focus on reducing unnecessary expenditure rather than implementing a wealth tax. “The focus should be on strategic areas where there’s excess expenditure that does not add value,” he advised.
ChickenFacts is closely tracking ongoing developments and will provide updates as they unfold.
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