With the 0.5 percentage point VAT hike set to kick in next Thursday (May 1), retailers say they will look for ways to offer customers relief at the tills, without resorting to price-gouging.
Both the parliamentary budget office (PBO) and trade union federation Cosatu have warned there’s no provision for the National Treasury or the government to monitor zero-rated items — or to compel retailers to extend these benefits to poorer consumers. They warn that unscrupulous retailers could increase prices on goods that are zero-rated for VAT — and pocket the extra money.
The budget proposes expanding the basket of VAT zero-rated food items to include canned vegetables, dairy liquid blends and organ meats from sheep and poultry. The current list has 19 food items and 12 other goods and services.
Zimbali Mncube, a tax and budget policy researcher at social justice group the Institute for Economic Justice, said he shared Cosatu and the PBO’s concerns that zero rating, while a useful tool to shield the poor, had reached its limits.
“National Treasury has confirmed that in the 2018 VAT increase, suppliers did not fully pass on the intended benefit of the VAT relief to consumers. This, however, is not the only risk. Suppliers may also falsely classify their [other] items as zero-rated to generate VAT refunds.”
Mncube said the Competition Commission should continue investigating retailers that abused the VAT system and the findings should inform policy intervention in specific markets to regulate prices, as was recommended by an expert panel review of zero rating in 2018.
None of the retailers approached by Business Times could say what mechanisms they have in place to make certain that zero-rated goods on their shelves are not marked up when VAT increases.
Pick n Pay said it was aware of the extra strain the VAT increase would place on South Africans. While supplier price increases were beyond their control, the company said it planned to work with suppliers to minimise the effect on customers.
The supermarket group said that in addition to its Smart Shopper loyalty benefits, it would offer further discounts on over 1,000 healthier products.
The retail market in South Africa stands at a tipping point. Those that place value-conscious shoppers at the forefront, embrace digitalisation and invest in new markets, including township economies, will be best positioned to succeed in the long run
— Isana Cordier, head of the consumer sector at Absa Corporate and Investment Bank
“Just six months since its launch, we’ve already seen notably healthier product purchasing evident among our club members — a clear indication that affordability plays a role in helping customers make better choices.”
Gerhard Ackermann, national merchandise executive at Spar Group, said economic conditions meant many South Africans were on tight budgets and battling to meet basic needs.
“Many of our retailers operate in areas where customers are on tight budgets. As such, retailers have introduced a combination of ... reduced base prices on certain items ... [and] promotions that assist customers to stretch their budgets.
“Our head office has started an initiative to drive cost efficiencies within our supply chain that will ensure we are prioritising our customers by being able to offer the lowest possible prices and not compromising on quality.
“At Spar, we are committed to the communities in which we operate — and that means finding ways to ease the pricing burden by offering community-specific pricing and promotions.”
While Shoprite did not respond to requests for comment, banking group Standard Bank announced that, from Wednesday, its clients will be able to access benefits through a partnership with the retail group.
“UCount Rewards members will be able to earn and redeem their rewards points across multiple Shoprite brands, including the rapidly growing on-demand shopping platform Sixty60. Customers can now earn up to 40% back in rewards points when they shop on Sixty60, and up to 30% back when shopping in-store.”
Massmart said that across its operations the group remained committed to helping customers save money by maintaining low operating costs, allowing it to offer lower prices.
“One practical example of this has been Makro having the lowest-priced basket of essentials — based on independent price comparisons — for most of 2024.”
The South African Reserve Bank’s April monetary policy review said headline inflation is expected to rise gradually as fuel, food and other inflation components normalise and the proposed VAT hike kicks in.
“Upward price pressures will also emanate from the proposed VAT increases of 0.5 percentage points per year over the next two years. The Reserve Bank projects an addition of 0.2 percentage points to headline inflation per year from the VAT increases,” the Bank said.
Isana Cordier, head of the consumer sector at Absa Corporate and Investment Bank, said consumers are prioritising affordability and carefully managing spending. Retailers must adapt by offering competitive pricing and loyalty-driven incentives to maintain customer engagement, she said.
“The retail market in South Africa stands at a tipping point. Those that place value-conscious shoppers at the forefront, embrace digitalisation and invest in new markets, including township economies, will be best positioned to succeed in the long run.”
— Additional reporting by Thabiso Mochiko
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.