A proposed technical amendment to the VAT Act could see consumers pay 14% more for certain categories of brown wheat bread, including whole-wheat brown bread, high fibre brown bread, high protein brown bread and brown health bread from early next year.
Currently, consumers buy these food items at a price inclusive of 0% of VAT (zero-rated), instead of the standard 14% applicable to most goods and services.
Charles de Wet, head of indirect tax at PwC Africa, explains that when VAT was introduced in 1991, brown bread was considered a “merit good” and qualified to be zero-rated. The bread regulations, which set out the definition of brown bread at the time, effectively meant that all categories of brown bread (including whole-wheat brown bread, high fibre brown bread and whole-wheat bread) were zero-rated items for VAT purposes.
A Practice Note previously issued by the South Africa Revenue Service (Sars) to provide guidance on the issue, implied that whole-wheat brown bread, high fibre brown bread, high protein brown bread and brown health bread were all considered brown bread and qualified as zero-rated items, but the Practice Note was subsequently withdrawn.
An updated version of the bread regulations that was published earlier in 2017, effectively amended the definition of brown bread and includes various subclasses of brown bread under the class “brown wheat bread”.
“These subclasses represent bread that is baked using brown wheat flour and classifies ‘brown wheat bread’ differently from ‘brown bread’,” De Wet says.
The most recent Taxation Laws Amendment Bill proposed a technical correction to the VAT Act, to define brown bread in terms of the updated bread regulations, but did not replace the term “brown bread” with “brown wheat bread”.
“The result is that certain categories of brown wheat bread, namely whole-wheat brown bread, high fibre brown bread, high protein brown bread and brown health bread, which qualified to be zero-rated under Schedule 2 will become standard rated (14%) on implementation of the Taxation Laws Amendment Bill, 2017,” De Wet says.
“This will no doubt impact the entire supply chain but the ultimate impact is on the consumer, in that the price of these types of bread will now be 14% higher.”
The proposed amendment is expected to take effect early next year, once it is signed into law.
Source: Inge Lamprecht, 2 November 2017, Moneyweb, Consumers could pay 14% more for whole-wheat brown bread, viewed 5 November 2017.