In most countries with VAT, certain goods and services are zero rated to alleviate the tax burden on the poor. However, this may not be the most cost-effective way of helping the poor. We investigate the appropriateness of the products currently zero rated and the impact of this on the poor, the implications for tax revenue were it to be removed, and the contribution to poverty relief of zero rating compared to targeted social transfers.

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Written by Ada Jansen, Associate Professor, Department of Economics, Stellenbosch University; and Estian Calitz, Emeritus Professor, Department of Economics, Stellenbosch University

This article was first published on the Econ3x3 website – Accessible policy-relevant research and expert commentaries on unemployment and employment, income distribution and inclusive growth in South Africa.