South Africa’s Largest Grocer Warns VAT Hike Will Hurt Shoppers

The South African government’s proposed value-added tax (VAT) increase could derail a fragile recovery in consumer spending, warns Pieter Engelbrecht, CEO of Shoprite Holdings Ltd., the continent’s largest supermarket chain.

“The two things that really worry me are the incredibly high cost of food and high unemployment,” Engelbrecht said.

Consumer spending has recently shown signs of improvement, supported by declining inflation, potential interest-rate cuts, and the introduction of South Africa’s two-pot pension system, which grants savers early access to part of their retirement funds. However, Engelbrecht cautioned that a VAT increase would put more pressure on struggling households.

Retailers to Pass VAT Hike Onto Consumers

Woolworths Holdings Ltd. CEO Roy Bagattini echoed these concerns, noting that a tax increase on food would inevitably be passed on to consumers, further straining household budgets.

“That’s not good for consumption at the end of the day and is something we’d want to try and avoid,” Bagattini stated in an interview after Woolworths released its first-half earnings.

Despite these warnings, the South African government has been in discussions with retailers about food prices and potential tax hikes. Shoprite and other major retailers are exploring ways to mitigate food inflation through artificial intelligence, cost analysis, and collective buying strategies.

South Africans Struggling with Rising Costs

While inflation has eased, helping Shoprite boost sales volumes, Engelbrecht emphasized that the financial strain on consumers remains severe.

“People are desperate,” he said. “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.”

The VAT hike proposal, which is expected to be finalized in the 2025 National Budget on March 12, remains a key point of contention among government and business leaders. With consumer spending under pressure, the retail sector is bracing for the potential impact of increased taxes on essential goods.