The proposed increase in the VAT rate by the South African government could severely impact consumer spending, according to Shoprite Holdings Ltd.’s CEO Pieter Engelbrecht. The potential tax hike, arising from coalition disagreements, has already delayed the budget speech. Retailers fear that any increase in food taxes would hamper consumption, as they pass costs on to customers in a struggling economic climate.
In light of the South African government’s proposal to increase the value-added tax (VAT) by two percentage points to 17%, Shoprite Holdings Ltd.’s CEO, Pieter Engelbrecht, expressed concerns regarding the potential detrimental impact on consumer spending. This controversial move, resulting from disagreements within the coalition government, has postponed Finance Minister Enoch Godongwana’s budget speech until next week. Engelbrecht remarked that consumers are already struggling financially, emphasizing that such a tax hike could worsen their situation.
Moreover, Engelbrecht highlighted the ongoing challenges faced by businesses, which have been forced to invest significantly in self-sufficient power and water supplies due to pervasive service disruptions. Retailers, he noted, are unable to absorb further increases in food taxes and would likely pass these costs on to consumers, thereby impeding overall consumption. Engelbrecht articulated that high food prices and unemployment remain two of his primary concerns for the market.
Despite some recent improvement in consumer spending spurred by falling inflation, interest rate reductions, and changes in pension access, challenges remain prominent. Woolworths Holdings Ltd. CEO Roy Bagattini also noted that any tax hikes in food would negatively affect retail consumption. Engelbrecht pointed out that Shoprite is actively engaging with other businesses and employing data-driven strategies to manage food inflation and supply issues more effectively.
Although the local inflation rate has begun to decline, the outlook remains fraught with risks. Engelbrecht conveyed the desperation many South Africans feel, stating that it is not merely a reduction in purchasing power but rather that current financial resources do not stretch as far as they once did. This creates a pressing environment for retailers and consumers alike as they navigate the complexities of a recovering economy.
In conclusion, the potential increase in VAT proposed by the South African government poses significant risks to an already fragile consumer spending recovery. Executives from major retailers like Shoprite and Woolworths express their apprehensions about the implications of higher taxes on food prices amidst rising costs of living and unemployment. Efforts are underway among businesses to mitigate food inflation effects; however, the overall economic climate remains precarious as consumers face increasing difficulties in managing their finances.
Original Source: www.livemint.com
