VAT Treatment of Merit Goods and Services 2005


Prior to the introduction of value-added tax (“VAT”) in South Africa in October 1991, a policy decision was taken to introduce a broad-based VAT system, with concessions restricted to a minimum and the needy being assisted as far as possible outside the tax system. Pressure from various lobby groups and an inability on the part of the Government of the day to prove that the necessary assistance would in fact be given to the needy to compensate for the effect of VAT, resulted in various last-minute concessions being introduced to ensure the smooth introduction of the tax. As a result, the VAT system in operation in South Africa today is more differentiated (and has a narrower base) than was originally intended and the existing concessions have created a precedent for other interest groups to request preferential treatment for goods and service on
grounds that the differentiation is merited. While the claim for concessionary VAT treatment is often based on a desire to
address the perceived regressivity of VAT, other arguments are also advanced to justify merit good status. These include:
The goods or services are in the public interest;
The goods or services are essential;
Poorer households should not have to pay VAT on the goods or services;
Direct targeted budgetary assistance is not capable of ensuring that the goods or services can be supplied to everyone;
The goods or services are of a cultural nature;
The goods or services are of an educational nature and taxation thereof would amount to a tax on knowledge; or
The goods or services can, from a political point of view, not be taxed.
The aim of this study is to determine whether the current VAT concessions should be retained and also to ascertain whether the policy considerations which applied when VAT was introduced are still relevant, or whether changed circumstances would justify the introduction of further concessions for other merit goods and services.


Evaluation Number:
Report Approval:
Thursday, 15 December 2005
Thursday, 07 February 2013
Initiated By:
National Treasury
Undertaken By:
Pricewaterhouse Coopers
Evaluation Period:
Evaluation Area:
Economic planning and development
National Outcome:
National Outcome 5: A skilled and capable workforce to support an inclusive growth path.
Commissioned By:
Evaluation Type:
Evaluation Subject:
Geographic Scope:

Evaluation Documents

File Name
120 EQAT 20130319 sr_mb.pdf
VAT Treatment of Merit Goods and Services.pdf 120.pdf

Similar Evaluations

Fiscal incidence of social spending in South Africa, 2006

The objectives of the present study were to investigate expenditure incidence in education, tertiary education, health, social assistance, housing, water provision and electricity, and in particular...
Evaluation Number:
Report Approval:
Saturday, 28 February 2009
Sunday, 13 January 2013
Initiated By:
National Treasury

Evaluation of the Government Business Incentives

The South African Government uses a wide range of incentives to encourage firms to act or invest in specific activities or contribute to certain social or economic outcomes. Whereas individual...
Evaluation Number:
Report Approval:
Friday, 31 August 2018
Tuesday, 19 January 2021
Initiated By:
Department of Small Business Development (DSBD)