Concerns Rise Over Proposed VAT Increase Impact on South African Consumers

The South African government’s proposed VAT increase threatens consumer spending recovery, says Shoprite CEO Pieter Engelbrecht. With high food costs and unemployment, businesses may not absorb additional food taxes. Woolworths CEO Roy Bagattini warns that such increases will likely burden consumers, hindering consumption. Retailers are seeking innovative solutions to combat food inflation amid these economic challenges.

The chief executive officer of Shoprite Holdings Ltd., South Africa’s largest supermarket chain, has expressed concerns regarding the government’s proposed increase in value-added tax (VAT) by 2 percentage points to 17%. This tax hike could hinder the fragile recovery in consumer spending, which has shown signs of improvement due to factors such as lower inflation, interest-rate reductions, and new pension regulations allowing early access to retirement savings.

Pieter Engelbrecht stated in a recent interview that local businesses, still grappling with significant operational costs from energy and water supply shortages, would struggle to absorb any further increases in food taxes. He highlighted the urgent issues of high food prices and soaring unemployment, as few companies are creating jobs at a net positive rate.

Engelbrecht remarked on the critical nature of the current economic landscape, saying that while inflation has decreased and led to growth in retail volumes, many South Africans are finding that their money does not stretch as far as it once did. He posited that consumers are not simply buying less due to reduced funds, but are instead facing diminished purchasing power.

Additionally, Roy Bagattini, the CEO of Woolworths Holdings Ltd., echoed similar sentiments regarding the potential tax burdens, stating that any increase in food tax would likely be passed onto consumers. This scenario could severely impact overall consumption.

Despite the challenges, Engelbrecht noted that the government is actively consulting with retailers about food pricing and impending tax changes. Shoprite and other major retailers are exploring innovative strategies, utilizing technology and collective buying practices, to mitigate food inflation and improve cost management.

In summary, the proposed increase in VAT poses a significant threat to South Africa’s economic recovery and consumer spending. Retail leaders are voicing their concerns about food inflation and unemployment, highlighting the challenges businesses face in maintaining affordability for consumers. The government’s engagement with the retail sector is crucial, as innovative solutions are necessary to navigate these economic hurdles while ensuring that the needs of consumers are met.

Original Source: www.livemint.com