FOOD VOUCHER SCHEME PRESENTATION
Women’s Development Bank
Household Size |
Recommended monthly food Expenditure |
Actual average monthly food expenditure |
Food Expenditure Gap |
1 |
286.50 |
424.55 |
-138.05 |
2 |
573.00 |
762.53 |
-189.53 |
3 |
859.50 |
818.16 |
41.34 |
4 |
1146.00 |
892.14 |
253.86 |
5 |
1432.50 |
879.62 |
552.88 |
6 |
1719.00 |
803.57 |
915.43 |
7 |
2005.50 |
810.91 |
1194.59 |
Source: NIEP estimates
This table shows that as family size gets larger the food expenditure gap gets bigger. Thus larger-sized households are more vulnerable to food insecurity and malnutrition than smaller-sized households.
7) The existing social security system is inadequate in addressing food security and ensuring that every citizen is able to meet minimum dietary requirements to avoid malnutrition. In particular, large households of seven or more are supported by an average of 1,2 jobs. Clearly with wages as low as they are, this is inadequate to provide food security to the family.
8) Fourty percent of all households receiving incomes of less than R2 500 per month comprise of 5 or more members and nearly 20% of seven or more. Whatever the size of the family, the statistics show there is an average of only one breadwinner per family.
9) The study shows that there is clearly food insecurity among many households and therefore there is a need for some income supplement or an effective nutrition programme to ensure that malnutrition, particularly among children, is curtailed.
3. The South African Welfare Department
The South African Welfare department has as its overriding objective poverty alleviation. In particular, it needs to find a way to deliver food security among other things to the poorest sector of the population.
The advantages for the Welfare department of a national food voucher scheme are as follows:
1) Providing food security to the families of the employed and the people they support allows Welfare to concentrate its efforts on the people most in need of help.
2) The creation of a secure national platform to distribute food benefits can be used by Welfare to provide food security the people it is responsible for.
3) The creation of a national platform will also allow Welfare to make other distributions whether in cash or food in a secure and cheap manner. The technology platform envisaged which will be smart card based will allow multiple uses over and above food voucher cards. Thus it could be easily used to make pension payments.
4. Experience in other countries
To fight against malnutrition among low-paid workers and their families and to protect unity and equality among the various communities, 22 years ago the Brazilian government launched The Brazilian Alimentary Pact ( Programa de Alimentaçao do Trabalhador - PAT) which consisted of securing balanced nutrition by means of Meal and Grocery Vouchers funded by the private sector.
The Brazilian Alimentary Pact has become one of the most important social programs of Brazil. This program (PAT) nourishes more than 10 million Brazilian workers from around 300 000 companies in both the public and private sectors. Approximately 74% of this population earns an income of below US$ 500 per month.
Similar programs exist in over 31 countries around the world, from Latin America to Eastern Europe. In Britain where the food voucher concept originated in the 1950s, the scheme continues to this day..
The use by governments of the platforms developed by private specialised issuers of alimentation vouchers/cards has been a major trend of the past 5 years. More and more, welfare departments are looking for a way of securing and better administering the benefit they grant to the unemployed. The delivery platforms, developed by specialised issuers to provide a national coverage for the alimentation vouchers given to low-paid workers, proved to be very cost effective and secure for the delivery of welfare benefit :
Exemption of charges on food vouchers |
ROMANIA |
ARGENTINA |
MEXICO |
BRAZIL |
Social Charges |
42% to 52% |
37 |
30% |
31% |
Income Tax on workers |
25% |
0% to 35% |
22% |
0% to 27% |
Taxes and charges on payroll not collected |
67% to 77% |
37% to 72% |
52% |
31% to 58% |
Double deductibility of food vouchers expenses |
none |
None |
none |
Yes |
South African Proposal – a double deduction
Deductibility on new users earning less than R1600 |
200,00% |
Deductibility on new users earning between R1600 and R4125 |
150,00% |
Deductibility on new users earning more than R4125 |
100,00% |
NET TAX RENUNCIATION
Workers’ income |
Monthly Food allowance |
Personal Income tax |
Amount deductible by the company |
Income tax (personal & corporate) forfeited |
< 1600 Rands |
100 Rands |
0 |
200 Rands |
30 Rands |
1600<x<4125 |
100 Rands |
19 |
150 Rands |
34 Rands |
4125<x<5375 |
100 Rands |
30 |
100 Rands |
30 Rands |
Nevertheless, the additional consumption of foodstuffs in the affiliated formal food shops will allow the State to collect additional taxes and charges. As the food voucher is a transparent method of payment, each affiliated service provider is known and reimbursed through banking transfer :
3. The food security is the only feasible environment through which a functioning Public Private Partnership (PPP) can be established towards developing the card infrastructure, which can then serve as delivery mechanism also for other social deliverables. This derives from two factors:
3.1 Around the world food security is tackled first through the lower level employment sector; this involves employers who, thought the tax system, can then become co-funders of the programme. It has also been proven that in developing countries many unemployed are reached through the informal social delivery system that lower level employment sector represents.
3.2 To succeed in using modern card technology for deep poverty social deliverables will require foreign investment of both financial resources and even more importantly, technology and expertise. It is simply a reality that this private foreign resources can only be involved initially through the food security environment since this is what they are familiar with and have developed in many countries
.
4. The oldest applications of coupons or cards as delivery infrastructure for social deliverables are in the food security environment. This means that the technology has been tried and tested more in this environment than in any other, which reduces the risk in pursuing implementation and operation in this country.
The Tax Dimension
5. It is obviously more than coincidence that the vast majority of systems which make use of food coupons or similar systems do so with a tax incentive dimension The major reasons flow from exactly the circumstances we find in South Africa, which include
• an inadequate public delivery infra-structure which is compensated for by the private sector's employer/employee infrastructure;
• the tax system, as it is administered in the compensation context, offers real opportunity to draw the business sector into the scheme;
• through the relatively sophisticated remuneration tax environment a whole extra level of control against abuse is introduced; and
• since the incentive would typically involve a host of low-value items rather than a small number of high value benefits, the opportunity for tax fraud or abuse (as opposed to abuse of the coupon system) is drastically reduced.
6. In their First Interim Report, the Katz Commission on Tax Reform correctly warned against using tile tax system as incentives tool for all kinds of extraneous causes or objectives (see especially Chapters 7 and 13 of their [First] Interim Report).This philosophy as a general principle remains valid. At the same time, the Commission was careful to point out that if certain criteria were present this approach should be not be applied dogmatically so as to lose an opportunity that could best be achieved trough the tax system. They enumerate four circumstances which, if present would legitimise a tax incentive ([First] Interim Report, para 7.3.2):
6.1 The intended objective is a legitimate and necessary purpose of the State.
This would clearly apply when it comes to food security- the State has to deliver on food security.
6.2 The intended objective can be achieved more effectively through, or partially through, tax incentives than through expenditure programmes of government.
The benefit of incentivising the business sector with its employer/employee infrastructure into the PPP is both the delivery infrastructure and funding partnership. This is partly why more than 30 countries have opted for this route.
6.3 The loss of revenue attendant on the tax measure is justifiable relative to the benefits attained.
In so far as the provision of food security is a fundamental and pressing task of government in any event (see 2.1 above), tax cost is merely a different route to that objective-if therefore, the delivery can be done more effectively through the tax system (sec 2.2 above) AND there is not a material leakage through tax abuse (see 2.4 below), the conclusion is inevitable that the tax "cost" should actually be a net economic gain. The tax mechanism entices the incentivised employer to bring both infrastructure and funding which is the return on the tax cost.
Finally, a counter-contribution to tax collection itself should flow through factors like additional (tax generating) jobs created through the system, VAT, greater productivity etc. Although this counter-flow to the fisc is relevant, it should not become the focus since the real benefit for the State should lie in the more efficient delivery of an absolute humanitarian, constitutional and economic responsibility of that same State.
( As regards the creation of jobs, refer e.g. the job creation objectives with the Primary School Nutrition Program as per the Final Last Draft of the National Report on Social Development 1995-2000 page 26-experience has been that a full national food coupon system creates a significant number of jobs.
6.4 The scope for the abuse of the tax measure is not excessive.
As suggested above, an environment that concerns a great number of low value items is much less conducive to tax fraud or even abuse than individual, high value incentives. Use of the remuneration infrastructure, which latterly has become much more effectively policed and where statutory auditors may even be called upon to provide further control, further militates against material abuse.
While the details of a tax incentive will determine the practical validity of the conclusion that the Tax Commission’s requirements for tax incentives have been met, the circumstances here in question certainly seem extraordinarily conducive to such an outcome.