Value-added Tax
1671. Zero-rating of foodstuff
October 2008 – Issue 110



In a recent VAT case heard by the European Court of Justice, the taxpayer, Marks & Spencer, successfully claimed a refund of £3 500 000 (R52,5 million) from the United Kingdom’s Commissioner of Customs and Excise after the organisation realised that the sale of its teacakes was subject to zero rate rather than the standard rate of VAT.


Although teacakes cannot be zero rated in terms of South African VAT legislation, this case illustrates that if a particular retailer or wholesaler incorrectly interprets the VAT treatment of small items, such as teacakes, the financial implications over a period of five years can be significant.


South African legislation

The VAT Act provides for the supply of certain so-called basic foodstuffs to be zero rated. The items covered, or rather, the items not covered by this zero rating are currently the topic of much debate with calls for extending the list of items.


The reasoning behind this zero rating is to provide basic foodstuffs at a reduced price to benefit the poor.

The list of zero rated items includes the following items:


However, the zero rating is not available where the goods are provided as a meal, ready for consumption when supplied. So, where a carton of milk is bought over the counter, the supply will be zero rated, but if bought as part of a meal, the supply becomes standard rated.

The list of zero rated items is, however, by no means easy to interpret and to apply. This is clear from SARS publications. Since 1991, SARS has published numerous general rulings and VAT news articles on zero rated foodstuffs, as well as a specific practice note on the zero rating of brown bread.


Some of the rulings include the following:


Basic guidelines

From all these publications it is possible to determine some basic guidelines, which can be used when deciding whether a product should be zero rated or not:


Standard rate instead of zero-rate

The other possibility is that a retailer may erroneously sell a product at the standard rate rather than the zero rate.

The result of this is that an informed customer might query why a retailer is selling basic foodstuff including VAT at 14%. Although not a direct financial loss to the retailer, such a transaction might result in a customer leaving with the idea that the retailer is more expensive than the competition.

In addition, if a retailer realises the mistake, the VAT incorrectly paid to SARS cannot be claimed back unless the retailer can provide proof to SARS that the VAT refund will be paid back to the customer who originally paid the VAT.



The issue of zero rated foodstuffs should be approached with caution. A possible way of minimizing the risk may be to form an industry Tax Forum where affected vendors can engage SARS to clarify VAT issues, such as the zero rating of certain foodstuffs.

This should result in consistency throughout the market and minimise any potential exposure resulting in errors in VAT treatment.




VAT Act:S 11,

VAT Act:2nd Schedule part B