Shoprite’s CEO warns that a proposed VAT rise in South Africa could derail recovery in consumer spending. Business costs have increased due to infrastructure issues, making it tough to absorb tax increases. Even with some positive trends in consumer spending, the high cost of living remains a significant hurdle for many South Africans.
Shoprite Holdings Ltd., Africa’s largest grocery retailer, warns that the South African government’s plan to increase value-added tax (VAT) could hinder a recovery in consumer spending. CEO Pieter Engelbrecht expressed concerns that the proposed 2 percentage point VAT hike to 17% would burden consumers who are already struggling financially. The budget speech by Finance Minister Enoch Godongwana has been delayed due to internal disagreements regarding the tax increase.
Engelbrecht highlighted significant business challenges, including the need for companies to create their own basic utilities due to repeated disruptions in power and water supply. This financial strain makes it difficult for retailers to absorb any potential food-tax hikes. “The incredibly high cost of food and high unemployment…still worry me,” he stated.
The consumer spending landscape has only recently begun to improve, aided by factors like controlled inflation and interest rate reductions. Woolworths Holdings Ltd. CEO Roy Bagattini echoed these sentiments, warning that any increase in food taxes would likely be passed on to consumers, further straining consumption levels.
Despite the government’s interest in maintaining dialogue with local companies on food pricing and potential taxes, Engelbrecht noted the ongoing efforts by Shoprite and global retailers to better manage food inflation through advanced analytics and collective purchasing.
While the decline in local inflation has positively impacted Shoprite’s volume growth, ongoing economic challenges persist. Engelbrecht remarked on the desperation among consumers, stating that many are not simply spending less but are facing a decline in the purchasing power of their money.
The potential VAT increase in South Africa poses significant threats to consumer spending and business operations. CEO Pieter Engelbrecht of Shoprite emphasizes the financial challenges faced by consumers, while other retailers are also wary of passing costs to customers. Retail strategies are evolving to mitigate inflation, but economic hardships highlight the urgent need for a solution to food pricing and consumer affordability.
Original Source: www.livemint.com
