Press release
Poverty, unemployment, and poor living conditions are part and parcel of many South Africans’ daily existence, which is the reason for a list of basic food items taxed at a zero value-added tax (VAT) rate.
During the recent budget speech, a hike in the country’s VAT rate was announced. In a bid to mitigate the impact it will have on poor and marginal consumers, the list of food items with a zero VAT rate was also expanded to include, among other things, offal products from various animal species.
This announcement has been welcomed in red meat circles and is the culmination of co-ordinated collaboration between several red meat industry role-players. It follows a recent application by the poultry industry for certain individually quick frozen (IQF) chicken products to be declared VAT exempt, the motivation being that chicken meat is one of the protein sources most often purchased and consumed by low-income groups.
Challenges of chicken at zero % VAT
The Red Meat Producers’ Organisation (RPO) responded by way of a press release, pointing out a number of reasons why such a request cannot be met, among them that IQF chicken in South Africa should be classified as a luxury product on the grounds of demand elasticity.
According to Dr Frikkie Maré, CEO of the RPO, a quick summary of meat product shelf prices reveals that IQF chicken carries the second-lowest shelf price after beef liver, but once the bones and brine in chicken meat are excluded from the calculation, this product is in fact one of the most expensive protein items on the shelf.
Another reason is that taxing the meat of one species at a zero VAT rate will have major consequences for the meat market as a whole, with a resultant negative impact on South Africa’s red meat producers.
The RPO expressly stated that they were in favour of adding animal protein to the list, but that consideration should be given to the cheaper products obtained from all animal species that are widely purchased by poor and marginal consumers. It was therefore proposed that several types of offal products be considered.
A joint effort
The RPO and various other organisations collaborated to this effect and a joint formal request was submitted to government in October 2024, requesting it consideration to include red meat offal products in the list of essential food items taxed at 0%. The organisations involved in the application were the South African Meat Processors Association (SAMPA), the South African Pork Producers’ Organisation (SAPPO), Red Meat Industry Services (RMIS) and the Red Meat Abattoir Association (RMAA).
The application drew government’s attention to the fact that products such as tripe, feet and red offal (lungs, heart, liver, and kidneys) can be excellent sources of protein for low-income consumers, as they are affordable and fit the profile of basic foods.
On 12 March this year, this plea bore fruit when the minister of finance, Mr Enoch Godongwana, announced during the budget speech that the Value-added Tax Act, 1991 (Act 89 of 1991) would be amended to expand the list of zero-VAT foods. The amendment officially comes into effect on 1 May this year.
The amendment to Schedule 2 of the Act involves the inclusion of edible beef, sheep and goat offal products, including liver, heart, kidneys, soup and marrow bones, tail, ears, tongue, tripe, cleaned offal, heads and feet. As for chicken, the products included on the list entail heads, feet, offal (livers, kidneys, gizzards and hearts) as well as cleaned offal. IQF chicken pieces are, much to the red meat industry’s relief, not included in the amended list of products.
The red meat industry’s request and success is a victory for the industry. Plummeting product prices and input cost hikes have increased pressure on red meat producers over the last two years, says Dr Maré. If government were to make IQF chicken cheaper, the product will be much cheaper than red meat which would lead to a sharp drop in the demand for and price of red meat, forcing red meat producers out of the market.
Impact on the consumer’s wallet
Although the financial benefit the average citizen will derive from 0% VAT rated red meat offal is yet to be calculated, Dr Maré made a few assumptions to explain the value and benefits of this breakthrough.
“If the system functions as it is supposed to and no fraud occurs, consumers should be able to buy these products at a significantly reduced price. The inevitable consequence, however, is that demand will increase and with it the price of these products. However, it is highly unlikely that it will increase by the entire 15% and should therefore remain an excellent and more affordable source of protein.”
Should the demand for red meat offal products increase, everyone in the red meat value chain will benefit. The fifth quarter, he explains, is supposed to cover abattoir slaughter costs and generate a profit. However, this is not always the case and abattoirs are therefore compelled to charge a slaughter fee. “If these offal products were to have a higher value, it might be possible for abattoirs to reduce or do away with the slaughter fee. A reduced slaughter fee will also benefit the producer.”
These benefits not only apply to red meat producers – retailers and the primary consumer will also benefit in the long run.
Application of 0% VAT
Unfortunately, policing the application of VAT-free regulations is sporadic at best, leaving the door open for fraud. For example, it is near impossible to prevent retailers from adding an extra margin or keeping prices the same after having removed the VAT on a product. The government has a duty to ensure that such transactions do not occur, but there are no formal provisions in this regard.
There are regulations affording the South African Meat Industry Company (SAMIC) the power to check meat product labels and ensure that offal products are not sold at a price that includes VAT and other products not labelled as offal.
Meanwhile, the industry is pleased with the announcement and the fact that it can bring relief to consumers who cannot otherwise afford to purchase healthy sources of protein. At the same time, it gives the red meat value chain the opportunity to establish offal products as a staple on store shelves. The RPO thanks all the organisations that were collectively involved in this effort. Collaboration is the key to unlocking advantages for both the industry and the consumer.
Feature photo: Dogan Alpaslan Demir on Pexels