Shoprite’s CEO warns that a potential VAT increase in South Africa could thwart consumer spending recovery. Disagreement within the government has delayed the budget speech addressing this tax hike, which may lead to higher costs for consumers. Retailers are already grappling with high food prices and the economic struggles of their customers. Shoprite is actively seeking solutions to manage food inflation while facing operational challenges.
The largest supermarket chain in Africa, Shoprite, expressed concerns that the South African government’s proposed increase in value-added tax (VAT) could hinder the recovering consumer spending landscape. Shoprite CEO Pieter Engelbrecht remarked that a delay in Finance Minister Enoch Godongwana’s budget speech is due to disagreements surrounding the proposed 2 percentage point increase in VAT to 17%. Engelbrecht emphasized that such a tax increase would be unaffordable for consumers who are experiencing financial strain.
In addition to VAT concerns, Engelbrecht noted the significant challenges businesses face in developing their own utilities and investing in distribution centers due to local production issues and port delays. He mentioned that retailers are likely unable to absorb any increased food taxes and will have to pass these costs on to customers. The continuing issues with high food costs and unemployment levels further exacerbate these concerns.
The recovery in consumer spending has only recently begun as inflation rates have stabilized, and interest rates have been cut. Changes in the pension system permitting early access to funds have further lent support to household spending. However, Woolworths CEO Roy Bagattini indicated that any increases in food taxation would adversely impact consumption and should be avoided.
Shoprite, alongside other retailers, is actively collaborating with government officials to address food prices and potential tax increases. The supermarket is adopting innovative strategies such as utilizing software and artificial intelligence to tackle food inflation. Engelbrecht noted that although local inflation rates have decreased, the pressures on consumers remain significant, stating that many South Africans are facing desperate financial situations, where purchasing power continues to diminish.
Engelbrecht’s concluding remark highlighted a poignant reality: “For most South Africans, it is not like I am buying less because I have less money, it is the fact that my money does not go as far anymore.”
In summary, the proposed VAT increase by the South African government raises significant concerns for consumer spending recovery, with retailers like Shoprite predicting negative outcomes for households already facing financial challenges. As companies grapple with high food prices and operational hurdles, the potential for increased taxation could further strain consumer budgets. Continued dialogue between the government and businesses will be crucial in addressing these pressing issues.
Original Source: www.livemint.com
