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CAPE TOWN - The panel on value-added tax (VAT) has submitted its report and recommended that white bread, flour, school uniforms, nappies and sanitary towels should be made zero-rated items, the finance ministry said on Friday.

"The panel further recommends that government should expedite the provision of free sanitary products to the poor and that the zero-rating of school uniforms be done only if they can be separated from general clothing," National Treasury said.

It added that, for each of the recommended items, the panel suggested that the treasury did further investigations to "ensure that the benefits of zero-rating accrue to consumers and are not captured by producers".

The panel was appointed by the finance ministry after VAT was increased from 14 to 15 percent in April, after it was announced in the national budget tabled in February with a view to putting an additional R22.9 billion into the state's coffers in the 2018/19 financial year.

It was mandated to evaluate the list of zero-rated items, consider the addition of further items to the list and consider other measures to mitigate the impact of the increase on poor households.

There are currently 19 items that are zero-rated for VAT.

Zero-rating white bread would amount to a total saving of R812 million to poor households, according to the panel's calculations, while zero-rating school uniforms would provide relief to the same category of the population to the tune of about R400 million.

The panel said in its report, which was handed to the finance ministry on Monday, that it must be considered whether the poor would not be more effectively shielded from the impact of the VAT hike by specifically targeted government expenditure measures. 

"In theory, it would be cheaper to return the cost of the VAT increase to the poorest households than to extend the zero rating."

It also noted that though VAT could not be considered a regressive tax, in reality it cost poorer households a greater percentage of their income than richer households. 

The ministry said the recommendations would now be subjected to further public input, which would include parliamentary hearings.

Finance Minister Nhlanhla Nene would then take into account these submissions, as well as those of the treasury team and the revenue service, before deciding which of the panel's recommendations to implement.

National Treasury said public comments must be submitted in writing to [email protected] by the close of business on August 31.

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African News Agency (ANA)