Concerns Over Proposed VAT Increase Impact on South Africa’s Consumer Spending

The CEO of Shoprite expressed concerns over a proposed VAT increase in South Africa, which could derail the recovery in consumer spending. With ongoing financial strain for many households, industry leaders fear that any increase in food taxes would have a negative impact. Efforts by businesses to mitigate food inflation through innovative solutions are underway, with dialogue between the government and retailers on these pressing issues.

The Chief Executive Officer of Shoprite Holdings Ltd., Pieter Engelbrecht, expressed concern that the South African government’s proposed increase of value-added tax (VAT) by 2 percentage points to 17% would impede a fragile recovery in consumer spending. This proposal, which has faced internal government disputes, led to a postponement of Finance Minister Enoch Godongwana’s budget speech to next week. Engelbrecht noted that consumers are already financially strained, and further tax increases would be detrimental.

Given the ongoing challenges, businesses, including supermarkets, have had to invest in independent power and water supplies, as well as new distribution centers, due to persistent local production issues and port delays. Engelbrecht emphasized that these expenses prevent companies from absorbing any potential increases in food taxes, stating, “People are desperate. For most South Africans, it’s not like I’m buying less because I have less money; it’s the fact that my money doesn’t go as far anymore.”

Consumer spending has recently begun to recover, aided by low inflation, reduced interest rates, and a new pension system allowing earlier access to retirement savings without penalties. However, retailers are likely to pass any forthcoming food-tax increases onto consumers, which could hinder overall consumption. Woolworths Holdings CEO, Roy Bagattini, shared similar sentiments in a recent interview following the release of first-half earnings, stating such measures could negatively impact spending.

Engelbrecht mentioned that the government has been engaging with retailers on the issues of food pricing and potential tax hikes. Shoprite and other global retailers are exploring innovative strategies, such as leveraging software and artificial intelligence, to mitigate food inflation through more effective cost management and collective purchasing.

In summary, the potential increase in VAT could threaten the recovering consumer spending landscape in South Africa, where financial challenges persist for many households. Industry leaders stress the necessity of avoiding further tax burdens to maintain spending levels and explore innovative solutions to manage food costs effectively. The future of consumer behavior hinges on the balance between government tax policies and corporate strategies to alleviate financial strain.

Original Source: www.livemint.com