Households who consume finer items of the food basket like rye and low GI bread will from 1 April need to dig deeper into their pockets.
National Treasury has proposed that the VAT Act be amended to exclude low GI and rye bread, which is usually consumed by wealthier individuals, to be removed from VAT exempted goods.
South Africa's VAT system includes 19 basic food items that are zero-rated. These include dried beans, samp, maize meal and rice. This system remains in place.
Recently, for example, there has been uncertainty around zero-rating brown bread.
The 19 zero-rated food items are only meant to cover basic food items. As of 1 April 2018, government proposes to amend the VAT Act (1991) to reflect the original policy intent � that only brown bread and whole wheat brown bread will be zero-rated.
Products such as rye or low GI bread, which in South Africa are much more expensive and tend to be consumed by richer households, will not be zero-rated, National Treasury said.
Luxury comes at a price
Meanwhile, Finance Minister Malusi Gigaba said that in addition to VAT, new proposals will see an increase on duties for luxury goods.
In addition to VAT, we are increasing excise duties on luxury goods and estate duty on wealthy individuals, he said when tabling his Budget Speech on Wednesday.
In its budget review document, Treasury said a less complex means of applying higher taxes to luxury goods is to increase ad valorem excise duties.
Government proposes to increase these rates, which are already applied to some goods that are consumed mainly by wealthier households, such as cosmetics, electronics and golf balls.
The associated revenue-raising potential is not significant but it is aligned with the progressive structure of the tax system.
National Treasury said effective from 1 April 2018, the maximum ad valorem excise duty for motor vehicles will be increased from 25% to 30%.
This basically means that manufacturers who produce a vehicle with a minimum value of R850 000 at production will be liable for excise duties of 30%.
According to National Treasury, the cost is most likely to be passed, in part, to the consumer.
The classification of cellular telephones will be updated to include 'smart phones' to ensure they attract ad valorem excise duties.
In addition, the ad valorem excise duty rates, now at 5% and 7%, will be increased to 7% and 9%, ensuring that households spending more on luxury goods contribute proportionately more to revenue.
Government will also consult on a proposal to replace the flat rate for cellphones with a progressive rate structure based on the value of the phone, National Treasury said.
Source: South African Government News Agency