Value Added Tax (VAT) is an indirect tax that is charged on most goods and services in South Africa. It is currently set at a standard rate of 15%. VAT is added to the price of taxable goods and services at every stage of production and distribution.
When it comes to food, there are some exemptions from VAT in South Africa. Understanding which food items are exempt from VAT can help consumers and businesses stay compliant with tax regulations.
What Foods Are Exempt From VAT In South Africa?
There are two main categories of exempt food items:
Basic Food Items
Certain basic food stuffs meant for human consumption are zero-rated in South Africa. This means while producers and retailers can claim VAT input credits, there is no VAT charged to consumers on these items.
Basic food items exempt from VAT include:
- Brown bread
- Mealie meal
- Fresh vegetables and fruit
- Vegetable oil used for cooking
- Maas (cultured milk)
- Legumes like beans, lentils and soya
- Pilchards or sardinella in tins
So consumers don’t pay any VAT when purchasing these essential food products. This helps lower income households afford nutritious basics.
Raw Agricultural Products
Other exempt items include certain raw and unprocessed agricultural products. Examples include:
- Grains like wheat and corn
- Seeds and other propagative material
- Fertilizers and pesticides used for farming
Farmers and food producers don’t charge VAT on the sale of these items to other businesses. But they can still claim input tax credits on purchases.
What Foods Are Subject To VAT In South Africa?
While basic foodstuffs are VAT exempt, other foods and drinks are taxable:
Processed and packaged foods: This includes canned foods, frozen meals, chips, chocolates, biscuits, condiments, spreads, etc.
Restaurant meals and takeaways: All prepared meals served at restaurants and takeaways are charged VAT at 15%.
Luxury foods: Imported foods, luxury chocolates, smoked salmon, cheeses, etc. attract VAT.
Beverages: All non-alcoholic and alcoholic drinks served at stores, restaurants and bars are VAT applicable.
Businesses selling taxable goods must collect VAT from customers and can also claim input tax credits. This input credit allows businesses to deduct the VAT they paid when sourcing ingredients, equipment, utilities, etc. This mechanism prevents double taxation.
Why Are Basic Foods Exempt From VAT?
There are good reasons why uncomplicated foods are zero-rated in South Africa:
Food security: Keeping basic foods VAT free ensures nutrition security for the poorest citizens who struggle to afford food because of unemployment and low incomes.
Fights hunger and malnutrition: Zero rating staples like maize meal, bread, rice, vegetables is proven to increase affordability and consumption. This fights hunger and nutrient deficiencies.
Supports health: Lower prices on basics gives low-income households greater access to healthy and nutritious products. This reduces malnutrition and diseases.
Administrative efficiency: Removing VAT on simple commodities like fruits, vegetables and milk simplifies tax procedures for small farmers and vendors.
Can Businesses Claim VAT on Exempt Supplies?
An important distinction is that while no VAT is charged on exempt supplies, related input VAT can still be claimed.
For example, a fruit farm does not charge VAT when selling apples to a grocery retailer. But the farmer can claim input credits for VAT paid on farm equipment, irrigation systems, fertilizers and so on. This allows tax deduction through the entire food production chain.
Similarly, retailers selling zero-rated brown bread don’t levy VAT at checkout. But they claim input VAT paid for ovens, wheat purchases, electricity, wages and other business expenses.
How Does Food VAT Work In Other African Countries?
Many African countries adopt a similar system of exempting certain basic foodstuffs from VAT:
- Kenya zero-rates commodities like corn, wheat, milk, eggs and fruits. Luxuries like chocolate and soda attract VAT.
- Egypt exempts essentials like rice, meat and tea. But has VAT on packed goods and drinks.
- Morocco has no VAT on bread, vegetables, fish or normal cooking oil. Other foods are taxable.
- Ghana exempts milk, cocoa beans and corn. But charges VAT on canned meat and bottled water.
How Can South African Businesses Stay Compliant With Food VAT Rules?
Here are some tips for food businesses regarding VAT compliance:
Carefully track what essential foodstuffs are VAT exempt versus taxable goods in your inventory, menus, invoices, etc. This avoids errors.
If you are selling a product that combines an exempt food (e.g. mealie meal) with processed ingredients, it becomes taxable.
Update your point-of-sale systems, accounting software and e-invoicing platforms to automatically flag and report zero-rated foods separately from 15% VAT items.
File your VAT returns accurately showing total sales, tax exempt sales, input credits claimed and VAT owed. Employ an accountant if unsure.
Display VAT registration certificates prominently in restaurants and stores open to walk-in customers. Non VAT-registered informal vendors do not charge or claim VAT.
During SARS tax audits, maintain necessary documentation proving proper VAT treatment of food supplies and invoices showing input credits claimed.
Staying on top of the classification of exempt versus taxable foods requires diligence. Using our South African VAT Calculator can simplify the process of adding up taxable sales and deducing input VAT. This prevents costly VAT adjustment orders or even penalties from SARS down the line for food companies.
South Africa makes basic nutritious foods VAT exempt to support nutrition access and affordability for lower income citizens. But many processed or luxury items still attract the 15% tax. While no VAT is charged on essentials, input credits can be claimed across the food production and sales chain. Food businesses can avoid errors by correctly categorizing exempt versus standard-rated stock.
Hopefully this breakdown has helped answer whether VAT applies for different food items in South Africa. Please visit our VAT calculator to access a full featured, easy-to-use South African VAT calculator for your business or personal tax computations.
Is Bread Exempt from VAT In South Africa?
Yes, basic brown bread is exempt from VAT while fancier white breads do attract VAT.
Is Fresh Fruit Charged VAT?
No. All fresh fruits and vegetables are classified as basic food items exempt from VAT. Dried, processed or canned fruits do have VAT added.
Is Milk Exempt From VAT?
Yes, basic milk products like fresh milk, maas and yoghurt are zero-rated. But flavored milk, milkshakes, and imported cheeses are subject to 15% VAT.
Is Chocolate VAT-Free in South Africa?
No. All chocolate, sweets and candy attract the standard 15% VAT rate unless homemade and unbranded.
Are Eggs Exempt From VAT?
Yes. Raw shell eggs are exempt from VAT as essential basic food items. However, packaged liquid or powered egg products are VAT applicable.
Is Rice Charged Vat in South Africa?
No, basic rice varieties sold are exempt. But fancy flavored or imported rice can have VAT added.
Is Tomato Sauce VAT-Free?
No. All processed condiments, sauces, mayonnaise, pickles, jams as well as tomato sauce are subject to 15% VAT.