VAT on sanitary products: have we made progress?

VAT is non-selective about the type of product that is taxed. But gender-neutral is not always gender-equal. Photo:

VAT is non-selective about the type of product that is taxed. But gender-neutral is not always gender-equal. Photo:

Published Sep 3, 2023


Value-added tax (VAT) is a tax on the consumption of goods and services in South Africa, which means the purchaser bears the cost thereof. As a tax, it is apathetic and gender-neutral. It does not target any particular gender, race or religion because all purchasers of the same items equally bear the VAT cost on those items at the point of sale.

Being broad-based, VAT is also non-selective about the type of product that is taxed. But gender-neutral is not always gender-equal.

VAT is imposed at the standard rate of 15% on the taxable supply of goods and services in South Africa, unless a product qualifies to be zero rated. Zero rating is the most beneficial form of VAT treatment. It allows a purchaser to acquire a particular item without VAT while still allowing the seller to claim a VAT deduction on its expenses related to the making of those zero-rated sales. This makes the item truly VAT free.

Where the final consumption in a supply chain is zero rated, government generally does not receive any revenue from that chain. Therefore, zero rating is a very important policy consideration as it has a direct impact on the fiscal budget.

VAT is a simple and efficient way for the government to collect a large amount of revenue on a broad range of expenses. By its very design, the VAT system in South Africa is based on sound fiscal principles of neutrality, equity and efficiency. It aims to be neutral as regards a consumer’s choice of production and distribution channels and it is simple in its administration.

It is not desirable for a VAT system to contain multiple VAT rates for different product types or a host of exceptions and exemptions, as this erodes the VAT base and increases the cost and complexity of compliance. Where concessions are made, such as the zero rating of certain products, these are carefully considered and intentionally limited to achieve particular policy objectives.

From an equity perspective, VAT is regressive as the poor spend a greater proportion of their income on tax compared to higher-income earners. This is particularly relevant in a South African context where income inequality is extremely high.

To limit the impact of VAT on the cost of basic items, Schedule 2 to the VAT Act contains a list of zero-rated products, predominantly comprised of various foodstuff. However, even with a basket of zero-rated items, VAT is a very blunt instrument to achieve equity in the system and, furthermore, does very little, if anything, to address gender-related challenges on a day-to-day basis.

Because VAT targets consumption, it can indirectly and inadvertently create gender bias. VAT on sanitary products have long been seen as discriminatory against women and is colloquially referred to as a ‘pink tax’. Considering that women would require some form of menstrual hygiene product each month from around the age of 13 until 55, except when pregnant, they bear a substantial additional tax burden compared to men simply based on biology. Women have no choice in the matter and to tax such a predisposition seems inherently unfair.

Due to the increase in the VAT rate from 14% to 15% on 1 April 2018, the Minister of Finance appointed a panel of independent experts to consider and review the list of zero-rated food items to limit the regressive impact of the tax on poor households. The Panel received over 2,000 submissions and a total of 66 expense items were considered, which included a number of non-food merit goods. Out of this, the Panel identified eight expense items for further consideration, including sanitary products.

According to its report recommendations on zero ratings to the Minister, published on 6 August 2018, sanitary products were undoubtedly the most suggested addition to the list of items already zero-rated. The Panel acknowledged that women face a host of unfair obstacles to advancement in education and work; measures to improve their living conditions and reduce barriers to engagement in society must be given substantial weight. At the conclusion of its work, the Panel recommended that sanitary towels be zero rated, combined with the free provision of sanitary products to women and girls through hospitals and clinics.

Therefore, with effect from 1 April 2019, the supply of [only] sanitary towels was zero rated.

Notwithstanding the recommendations of the Panel, the list of zero-rated sanitary products is notably limited to sanitary towels (pads) and pantyliners made from various materials. No mention is made of other commonly used products such as tampons, menstrual cups or even period underwear.

In order to acquire any of the excluded items, a purchaser would have to pay 15% more as a result of VAT. This goes against the neutrality principle of a VAT system which requires consumer choices to be unaffected by VAT.

By having excluded certain sanitary products, it would appear that South Africa inadvertently introduced a ‘luxury tax’ on these items as only higher income earners could afford to forgo VAT-free products in favour of more expensive ones. But every woman will tell you that menstrual hygiene products are not a luxury. These products are critical for reproductive health and essential for human dignity, which includes the right to choose.

It is equally essential to preserve the simplicity of the South African VAT system by avoiding the complex task of having to accurately classify each product of the same hygiene category in order to be taxed according to a particular VAT rate.

Further, it seems that when South Africa added sanitary products to the zero-rated list, it prioritised the regressivity of VAT (by attempting to make it more affordable for lower-income earners to have access to some sanitary products) and not necessarily to improve gender inequality in the system, which means there is still a lot of work to be done to achieve equal rights for all women in society regardless of their income level.

More and more women are making up a bigger component of the economy and they provide a significant contribution to society on various fronts, be it at home or in the workplace. Given that VAT is a consumption-based tax and that women’s menstrual needs are here to stay, it seems to be a missed opportunity for South Africa to have achieved much more in terms of gender equality.

* Giles is an executive at ENSafrica and a Chartered Tax Advisor with the South African Institute of Taxation (Sait)