Retailers attempt to keep higher prices from consumers

05 April 2018 | Economic factors

Some retailers have started passing the value-added tax (VAT) increase on to their suppliers, while squeezed consumers are beginning to re-arrange their budgets to accommodate the one percentage point VAT hike and a steep rise in the petrol price.

The new VAT rate of 15% came into effect on April 1 and threatens the already weak buying power of South African consumers, who also have to contend with a 72c per litre increase in the petrol price.

Former finance minister Malusi Gigaba announced the VAT increase and the rise in the Road Accident fund levy in the February budget.

Food retailer Choppies said that, in most cases, suppliers had absorbed the costs. "We had to pass on very few price increases to the consumer, which will have little impact on customers," the company said.

Clicks Group CEO David Kneale said the cost of medicines was regulated by the government in terms of the single exit-price mechanism and all prices at Clicks pharmacies were adjusted from April 1.

He said Clicks had "not altered any prices on lines that are … on promotion, which account for close to 35% of sales in Clicks".

"On non-promoted lines, Clicks has not yet moved pricing and will be monitoring competitors," he added.

The new VAT rate has necessitated software changes, which were expected to be fairly uncomplicated. However, some analysts said bigger organisations with multiple stores and suppliers, which had to deal with cross-border stock flows, would find the process more difficult than their smaller peers.

Retailers such as Woolworths have placed signs in their stores informing consumers that the price tag on items of clothing may not be the final amount reflected at the till.

National Credit Commissioner Ebrahim Mohamed said retailers had known about the VAT increase since budget day and were expected to have prepared for it, and visible pricing was required in terms of the Consumer Protection Act.

Professor Ingrid Woolard and a panel of experts will review the list of zero-rated items — which are exempt from VAT — with an initial report expected in June.

First National Bank economist Jason Muscat said analysts expected retail sales to continue growing because of an improvement in credit advancement, despite the VAT increase.