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

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

Author: 
Jansen, Ada
Publisher: 
Taylor & Francis Group
Date published: 
2017
Record type: 
Responsibility: 
Calitz, Estian, jt. author
Journal Title: 
Development Southern Africa
Source: 
Development Southern Africa, Vol. 34, No. 1, January 2017, pp. 56-73
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.

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Country focus: 

CITATION: Jansen, Ada. Considering the efficacy of value-added tax zero-rating as pro-poor policy: The case of South Africa . : Taylor & Francis Group , 2017. Development Southern Africa, Vol. 34, No. 1, January 2017, pp. 56-73 - Available at: https://library.au.int/considering-efficacy-value-added-tax-zero-rating-pro-poor-policy-case-south-africa