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Considering the efficacy of value-added tax zero-rating as pro-poor policy: The case of South Africa

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  • Ada Jansen
  • Estian Calitz

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.

Suggested Citation

  • Ada Jansen & Estian Calitz, 2017. "Considering the efficacy of value-added tax zero-rating as pro-poor policy: The case of South Africa," Development Southern Africa, Taylor & Francis Journals, vol. 34(1), pages 56-73, January.
    • Handle: RePEc:taf:deveza:v:34:y:2017:i:1:p:56-73
    DOI: 10.1080/0376835X.2016.1269635
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    Cited by:

    1. Amina Ebrahim & Rebone Gcabo & Lilian Khumalo & Jukka Pirttilä, 2019. "Tax research in South Africa," WIDER Working Paper Series wp-2019-9, World Institute for Development Economic Research (UNU-WIDER).
    2. Warwick, Ross & Harris, Tom & Phillips, David & Goldman, Maya & Jellema, Jon & Inchauste, Gabriela & Goraus-Tańska, Karolina, 2022. "The redistributive power of cash transfers vs VAT exemptions: A multi-country study," World Development, Elsevier, vol. 151(C).
    3. Cesar Revoredo-Giha & Luiza Toma & Faical Akaichi, 2020. "An Analysis of the Tax Incidence of VAT to Milk in Malawi," Sustainability, MDPI, vol. 12(19), pages 1-17, September.

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