Retailers have warned that the expansion in the VAT zero-rated food basket will fall short of protecting the country’s most vulnerable households, with one in five households already facing hunger and food prices set to rise.
Last week, finance minister Enoch Godongwana announced a VAT increase of 0.5 percentage points each year over two financial years, pushing the rate to 16% by 2026/27. The first hike will take effect on May 1, with a promise to add more essential goods such as canned vegetables, dairy liquid blends and organ meats to the existing basket of 21 VAT zero-rated food items.
One of the country's largest food retailers, Pick n Pay said the VAT increase was a “disaster”.
“Pick n Pay does not support an increase in VAT at all, and frankly, it’s a disaster for South Africans who are already struggling to put food on the table,” a spokesperson for the retailer told Business Day.
“What we can say is that should this increase be approved, we will do everything in our power to absorb it for as long as we can, especially on essential food and groceries.”
Gerhard Ackermann, national merchandise executive at Spar, said the hike will exert further pressure on consumers already reeling under the weight of high costs of living.
“Households are already under financial strain due to rising costs, and the upcoming VAT increase will add further pressure, especially on lower-income consumers,” Ackermann said.
“Although some people may have seen slight relief from a previous interest rate cut, this benefit is now being offset by higher taxes.”
While he confirmed that Spar would adjust prices to reflect the VAT increase from May, Ackermann said the Spar group was working to improve supply chain efficiencies to reduce costs and continue offering the lowest possible prices.
“The VAT increase will put further pressure on consumers’ spending power, likely making shoppers more selective about where and when they buy,” he said adding that he anticipated shifts in purchasing behaviour, with customers seeking greater value and prioritising essential goods.
While refraining from commenting directly on tax policy, consumer goods group Libstar said it was preparing for additional consumer strain.
“While some of our other products may benefit from the proposed changes, the impact at this stage is not material. As such, this policy change is not expected to have a significant effect on our business,” Lucky Star MD Lourens de Waal said.
Recent findings by Stats SA showed that 19.7% of households experienced moderate to severe food insecurity in 2023, while 8% faced severe food insecurity, meaning they regularly ran out of food or went hungry.
Households led by women, black Africans and those in rural or traditional areas especially in the Northern Cape, were among the most affected. According to the data, households with no employed members had a food insecurity rate of 12.7%, more than double that of households with at least one employed member.
The University of Cape Town’s study, The Majority Report, revealed that nearly 17-million South Africans live in households earning less than R3,500 per month.
These are heavily reliant on social grants, while another 19-million people live in households with incomes between R3,500 and R8,000. These groups, often labelled “poor households” and the “working poor,” frequently skip meals and rely on borrowing from relatives and neighbours to survive.
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