The proposed VAT increase in South Africa may hinder the recovery of consumer spending, according to Shoprite’s CEO. Concerns arise over consumers’ financial capabilities amidst high food costs and unemployment. Retailers are looking for technological solutions to address food inflation.
The South African government’s proposal to raise value-added tax (VAT) by 2 percentage points to 17% threatens to deter the nascent recovery of consumer spending, according to Pieter Engelbrecht, the CEO of Shoprite Holdings Ltd., the continent’s largest supermarket chain. Finance Minister Enoch Godongwana’s upcoming budget speech has been postponed due to internal disagreements within the coalition government regarding this tax increase.
Engelbrecht expressed concerns over the potential VAT hike, stating that consumers are already financially strained. He highlighted that businesses have had to invest significantly in self-sufficient utilities and distribution centers due to ongoing water and power shortages, making it difficult for them to absorb additional food tax increases. He remarked, “The two things that really worry me are the incredibly high cost of food and high unemployment.”
Although consumer spending appears to be recovering thanks to improved inflation and interest-rate cuts, any increase in food taxes would likely be transferred to consumers, adversely affecting consumption. Roy Bagattini, CEO of Woolworths Holdings Ltd., noted the negative impact of potential tax increases on consumer behavior, asserting their collective intention to oppose such measures.
Additionally, Engelbrecht mentioned that the South African government has engaged with local companies regarding food prices and tax hikes. He revealed that Shoprite, along with other international retailers, is exploring technological solutions, including artificial intelligence and cost analysis, to mitigate food inflation.
Despite a decline in local inflation aiding Shoprite’s volume growth, Engelbrecht warned that many consumers are experiencing reduced purchasing power. He poignantly stated, “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.”
In summary, the proposed VAT increase by the South African government poses a significant threat to consumer spending and economic recovery. Business leaders, including Shoprite’s CEO, stress the dire financial conditions of consumers and their inability to bear higher food taxes. Retailers are seeking solutions to manage food inflation while navigating the complexities of local economic challenges.
Original Source: www.livemint.com
