Women’s Development Bank

Thandi Ndlovu & Tania Slabbert
February 2001
Food Voucher Scheme

1. Introduction
In many jurisdictions around the world governments have introduced schemes to assist the lowest paid workers to feed themselves and their families. Such schemes have been implemented in a variety of ways. Generally, government provides subsidies either to deliberately encourage industrial canteens or to implement voucher schemes to enable workers to buy meals or food.

The advantages are manifold. First, an adequately fed worker is likely to be a more productive and healthy employee. Second, research shows that workplace accidents fall when workers are properly nourished. Finally, if the worker’s family is properly fed they too will enjoy better health and children will concentrate better at school.

In South Africa there is a pressing need for a similar system. Recent research by the Department of Health has shown that even the families of employed workers often suffer from malnutrition. Moreover, in the absence of a Social Security system, it is very often the lowest paid workers who shoulder the burden of providing for the unemployed. Research done by the National institute for Economic Policy has shown that the lowest paid workers provide for the largest number of people. This research is discussed in further detail below.

The constitution explicitly states that government is responsible for providing food security for all the country’s people. By assisting low paid workers to feed themselves and their extended families government can make a significant contribution to the welfare of its people.

Successful food voucher schemes in other countries are facilitated by government. This is achieved by government creating tax incentives for employers to assist their employees with food vouchers. Other than to create a suitable environment using the tax mechanism and to monitor companies issuing vouchers for abuses the scheme is self-sustaining and requires minimal input from government. The Worker Feeding Scheme in Brazil, which has been in existence since 1975, is the most successful public private partnership in that country to date.

Finally, once a mechanism has been put in place to deliver food security to the families of employed workers, the mechanism can be extended to the unemployed as well. In particular an efficient abuse free food voucher system could be the ideal platform for the Welfare department to deliver food security to the most vulnerable people: pensioners, single mothers and the long term unemployed.

2. The South African Situation
Pursuant to a research report produced by the National Institute of Economic Policy in December 2000, they made the following observations:
1) The standards of living of many South Africans continue to deteriorate and, notwithstanding a government commitment to ensure food security and allied resource availability to all citizens, a substantial part of the population lives in poverty.

2) Employment levels, which are declining, influence poverty trends. The fewer jobs, the lower household incomes and the higher the poverty rate. For those employed, wages tend to be too low to sustain them and their families. Any strategy that combats poverty has to create not only jobs, but jobs that offer a reasonable standard of wages.

3) 73% of all households in South Africa (6,9 million in total) receive monthly incomes of less than R 2 500. A further breakdown shows that 46% of all households receive less than R1000 per month. Thus 27% of the total receive incomes of between R1000 and R2500.

4) As household size increases, expenditure decreases. For example, four member households spend on average R5 667 per month compared to households with seven or more members which spend R3 095 per month. The data thus suggests that the larger the household the lower the income.

5) Although South Africa produces sufficient food, this in no way ensures food security at household level. According to the Department of Health, approximately 14 million South Africans are vulnerable to food insecurity. Furthermore, 22% of all children under the age of 9 are stunted due to chronic malnutrition.

6) The minimum recommended dietary intake in South Africa is estimated to cost R9.55 per day or R286 per month. The table below compares recommended expenditure on food with actual expenditure for various sized families:

Table 4: The Minimum Food Expenditure and the Food Gap, 2000

Household Size

Recommended monthly food Expenditure

Actual average monthly food expenditure

Food Expenditure Gap





























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 :
· The British government granted the management of welfare programs, such as the Milk Token, to specialised issuers of food vouchers and cards
· In France, a multi-application voucher was specifically created to enable municipalities to provide food, medicine or other services to impoverished families

5. The mechanism – a non-exclusive public private partnership
The advantage of a food voucher system is that it is administered by private companies who sell vouchers to employers for distribution among their employees (or to governments for distribution among the needy) and re-imburse the merchants who accept the vouchers as payment. Government’s role is limited to creating an environment where firms have an incentive to issue food vouchers to their employees. Government achieves this by introducing legislation creating tax advantages for companies issuing vouchers to their staff. In Brazil, for example, the food voucher component of an employee’s wage is exempt from payroll taxes. Also, the employer benefits from a double tax deduction on the value of the vouchers up to a certain ceiling.

Note that by introducing legislation which facilitates companies issuing food vouchers, government does not grant exclusivity to any one company. Any company which satisfies government requirements for the issuing of food vouchers may be accredited to do so. Thus in Brazil there are some seven companies engaged in the business of issuing food vouchers.

6. The Consortium
The food voucher concept is being promoted in South Africa by a consortium comprising the following companies:
1) Women’s Development Bank
Women’s Development Bank, through its investment arm WDB Investment Holdings, has been a driving force in promoting the concept of food vouchers in South Africa. The mission of the Women’s Development Bank is to train, finance and empower rural women.
2)The Disability Employment Concerns Trust
The trust makes investments on behalf of the leading NGOs representing the disabled in South Africa. The goal of the trust is to make profitable medium term investments with a view to generating revenue streams to assist its parent organizations in meeting the needs of the disabled.
3)Accor Services
Part of the international French company, Accor SA, which is one of the world’s largest hotel operators, Accor Services is the world’s largest issuer and administrator of food vouchers. It services over 11 million people in 31 countries worldwide.

Should government decide to introduce legislation to enable food voucher schemes, then the parties above will form a joint venture company 50% owned by Accor and 50% by the South African partners to implement the food voucher programme in South Africa.

7. Use of the Tax System
Accor, in association with its South African partners, is advised on tax matters by Mr Pierre du Toit, tax partner at Arthur Andersen & Co. The discussion below is due to Mr du Toit who sits on the Katz Commission although Mr du Toit is acting, in this instance, in his personal capacity and without gain. The full text of Mr du Toit’s analysis is contained in Annexure Two.

The First Interim Report of the Katz Commission on Tax Reform advised against using the tax system as an incentive for various causes. Nevertheless, the commission advised that, if certain criteria were met, this approach should not be applied dogmatically. These criteria are:
1) The intended purpose is a necessary and legitimate purpose of the state.
2) The intended objective can be achieved more effectively through incentives than through government expenditure programmes.
3) The loss of revenue attendant on the tax measure is justifiable relative to the benefits.
4) The scope of abuse of the tax measure is not excessive.

It is not a co-incidence that in over 30 countries similar systems use tax incentives. The reasons are:
· An inadequate public delivery infra-structure is compensated for by the private sector’s PAYE infra-structure.
· The tax system offers real opportunity to involve the business sector.
· Through the relatively sophisticated remuneration tax environment, an extra level of control is added.
· Since the incentive involves a host of low-value items the opportunity for tax fraud is drastically reduced.

While the actual details of the tax incentive will determine the validity of the conclusion that the Tax commission’s requirements’ have been met, the circumstances would appear conducive to such an outcome.

8. Possibilities of abuse
As with any such system, abuses can occur. The major problem experienced in other countries where food vouchers have been successfully used is when merchants discount food vouchers for cash. This is controlled by continuous monitoring of the outlets by companies which issue vouchers. In Brazil, for example, merchants who exchange vouchers for cash immediately lose their right to accept food vouchers – and thus a valuable source of revenue – as well as being liable to criminal prosecution. Companies need to be accredited by government before they can issue vouchers and part of maintaining their accreditation is ensuring that merchants accepting their vouchers do not abuse the system. Thus companies offering food vouchers have a keen interest in ensuring that abuse is kept to a minimum.

To further prevent the possibility of abuse, users of Alimentation vouchers in Brazil are being migrated to a magnetic card system instead of paper vouchers. This immediately removes the possibility of abuse occurring anywhere but at the merchant and any exceptional trade by merchants as a result of discounting vouchers would immediately be picked up by a central monitoring system.

In short, abuse can occur but it is controllable and has been successfully controlled in Brazil and other jurisdictions.

9. The South African Network
In South Africa, we would envisage implementing such a program immediately by way of smart cards in order to minimize any possible abuses. We envisage rolling out a network of smart card readers nationally in supermarkets and shops nationwide. The readers will be connected to a central transaction center by the fixed line network and in its absence by means of cellular phones. This means that even shops in the remotest areas can become part of the network provided there is cellular coverage.

The technology we propose to use will allow multiple uses of the card readers and will not be exclusive to the food voucher scheme. Thus apart from being used to authenticate food transactions, the readers could be used to make cash payments such as for the pension system.

10. Proposal
For each programme of alimentation for workers, the governments granted a tax benefit to companies that provide their employees with alimentation vouchers/cards.
Here are examples in some emerging countries :

Exemption of charges on food vouchers





Social Charges
Not collected

42% to 52%




Income Tax on workers
Not collected


0% to 35%


0% to 27%

Taxes and charges on payroll not collected

67% to 77%

37% to 72%


31% to 58%

Double deductibility of food vouchers expenses
On companies profit




(15% minimum profit tax not levied)

South African Proposal – a double deduction

Government creates a subsidy scheme whereby employers will provide subsidies to enable workers earning less than R2500 per month to purchase meals or basic foodstuffs. While details of the scheme need to be worked out by government, in particular the Department of Finance which will underwrite the scheme, the following scheme is envisaged :

The food allowance, within the limit of 400 Rands per month, shouldn’t be considered as salary and thus not subjected to income tax for workers earning less than a specific amount per month ( we took for the purpose of a simulation 5 375 Rands per month). Since South Africa does not have payroll taxes of any magnitude, the tax incentives here will need to be constructed differently from other countries where exemptions on payroll taxes and social charges are the main driver of food voucher schemes. In particular we propose accelerated tax deductions to provide employers with suitable incentives. This accelerated tax deduction will be focused on people earning less than 2 500 R /month, who in general do not pay income tax. As the scheme should not be discriminatory, the accelerated deduction will be available for incomes above 2 500 Rands/month but at a lower level. Thus:

Deductibility on new users earning less than R1600


Deductibility on new users earning between R1600 and R4125


Deductibility on new users earning more than R4125



Workers’ income

Monthly Food allowance

Personal Income tax

Amount deductible by the company

Income tax (personal & corporate) forfeited
by the State

< 1600 Rands

100 Rands


200 Rands

30 Rands


100 Rands


150 Rands

34 Rands


100 Rands


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 :
· All purchases which are VAT rated will result in an increase in VAT collection.
· Additional profits made on the sales due to food vouchers will increase profit tax.
· The implementation of food vouchers leads to an increase in the activity of caterers ands food distribution companies. This implies a creation of jobs. The University of Sao Paolo estimated that The Food Voucher Program in Brazil has created directly 1 job for 30 alimentation voucher users.
· These new jobs are in the formal sector and allow the State to collect additional income tax on the new employees.

Considering this additional collection of taxes, the cost of implementation of a food voucher programme has proved to be very low. In France and in Brazil, official studies ordered by those governments showed that taxes forfeited were compensated for by the increase in VAT collections, corporate tax and social charges.

An annual additional food allowance of 2.5 billion Rands provided through the Food Voucher Scheme would imply a net participation of the private sector of 1.7 billion rands and a non collection of taxes of 730 million rands by the State.

Given the additional taxes collected through the implementation of the Food Voucher Scheme, the net contribution of the State would be reduced to 368 million rands for a nationwide food allowance programme of more than 2.5 billion.

Consequently, for each additional 1 rand given to workers through food vouchers, the forfeiture of taxes will represent 0,15 Rands for the State

11. Conclusion - a springboard for delivering welfare benefits efficiently
Once the network is established for the low income earners, it is a proven food delivery mechanism which limits the possibility of abuse and one that will serve as an ideal platform for government, in particular the Welfare Department, to fulfil its constitutional obligations and guarantee food security to all South Africans.

In addition, should government wish to take advantage of the network to deliver benefits to the unemployed and most disadvantaged then it will have several competing platforms able to provide targeted benefits to people across the country. For example, government could offer specific benefits ranging from food to services to the neediest by way of a smart card platform. A detailed discussion of the possibilities is contained in Annexure One.

Annexure 1
As its back-office and transactions systems would be already operational, the Consortium would be able to build easily a specific additional network to meet the demand of a specific subsidy. Let's take the easiest example : The Welfare Department wishes to offer 20 Rands of basic food products to homeless people. The Consortium would be able to issue secured cards with the requested face value and order its network of supermarkets and food shops to accept it. The Consortium may define specific procedures of delivery and deliver the requested cards in the requested numbers of distribution outlets. If the Welfare Department wishes to narrow the scope of intervention, we also may define a specific card, like a Milk Card, against which, any user may obtain 1 litre of milk per day. The consortium would take care of the negotiation with the network, the implementation of the terminals and the entire administration of the system. In the same time, The Welfare Department is sure that its 100% of its subsidy reach its goal.

The delivery platform for food benefits could also easily expand and support any social program who need to be a real success. We could mention some examples :
-Transport programs to benefit students, pregnant mothers, disable persons etc.
-Educational programs to provide supplies to students at all levels.
-Health Programs for pregnancy and pediatric controls.
-Assistance to unemployed people in different matters (Transport, Health, Alimentation)
-Nutritional programs to provide goods to families living in the E and D level.

A food coupon/card system as starting point for a broad social services card infrastructure.

It has by now become clear that an infrastructure developed for an electronic card system towards food delivery carries enormous potential as a delivery vehicle for a whole host of welfare delivery items -pensions, disability grants, housing subsidies, medical support and the like. Yet, the only feasible way to develop a delivery system for basic social needs is through first establishing a food delivery system using card infrastructure.

The reasons for this include:
1. Food security is the most fundamental social need and represents government's most profound responsibility.
Apart from being the first pre-condition for life, proper nourishment is also a precondition for virtually every aspect that adds quality to life - energy to work and enjoy, capacity to be educated, desire for and ability to form social bonds, the will to dream and to create. There are still millions in our country, of all ages, who, not having been allowed ever to progress beyond the chronic pain of hunger. find any other manifestations of quality of lift distant and irrelevant.

On the public level, denial to a large section of a society of a right as fundamental as food security threatens that society itself. Endemic malnutrition contributes amongst others to public medical costs; demands on welfare systems; the cost of the education system through permanent damages to individuals’ capacity; instability and crime which place additional burdens on security services; and, through inhibited productivity, the scarcity of those very economic resources which may have helped alleviate the situation.
Food security therefore is a priority in its own right, quite independently of the other factors indicating it as starting point for a card-based social delivery system.

2. Food security represents the most wide-spread need, affecting the greatest numbers of people ranging from urban slums to deep rural poverty communities. As such, any infrastructure that serves, that need effectively is almost guaranteed to encompass the need populations of all other social deliverables.

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.