VAT reversal a ‘significant expense’ for retailers and banks

The last-minute decision by the National Treasury to scrap the planned 0.5 percentage point VAT hike has left retailers and banks counting the cost after spending heavily to prepare for changes that will no longer take effect.

The Consumer Goods Council of SA (CGCSA) has welcomed the withdrawal, acknowledging the relief it brings to struggling households. However, CGCSA CEO Zinhle Tyikwe noted retailers had already incurred unbudgeted financial and operational costs, first to implement the VAT increase and now to reverse it, “which they have absorbed and not pass on to consumers”.

Retailers, already under pressure from weak household spending, had to ensure system compliance, update shelf labels and inform customers of changes.

“We’re yet to quantify the cost by retailers but some have told us that it has been a significant expense both in terms of financial cost and hours spent to ensure they were compliant,” Tyikwe said.

The Western Cape High Court handed down a court order on Sunday suspending the 0.5 percentage point VAT increase. The suspension will remain in place pending either the passing of legislation by parliament regulating the VAT rate, or the final determination of whether the VAT Act is constitutional.

The scrapping of the VAT hike also means the government’s plan to expand the basket of VAT zero-rated food items has been shelved.

“This is particularly concerning for the CGCSA ... because many South Africans are hard hit by the cost of living and the zero-rating of the additional products would have gone a long way,” Tyikwe said.

The Shoprite Group, including Checkers, told Business Day it had already made the necessary preparations for the VAT increase, “including complex IT system updates”.

“While these preparations have been costly — a challenge faced by all businesses across SA — our priority remains shielding customers from unnecessary price hikes.”

The group said due to the uncertainty around the legal status of the VAT amendment, it was closely monitoring the situation “and remain ready to adapt as greater clarity emerges”.

“Should the withdrawal be formally ratified before May 1, we are ready to act swiftly to halt any price changes related to the increase.”

Pick n Pay said they had almost completed logistics for the VAT change, “so our teams are all hands on deck to roll this back and reverse the work we have already undertaken”.

Woolworths also said given the announcement that the proposed VAT increase has been suspended, it “will ensure that only the legislated 15% VAT remains applicable on 1 May”.

The reversal is also affecting banks and insurers.

Sizwekazi Mdingi, FNB head of external communications, said the bank was reviewing all systems affected by the proposed rate changes.

“Where these changes are not possible through automated processes and fees have been incurred, the bank will fully refund the impacted customers,” Mdingi said.

Similarly, Nedbank stated they “are currently implementing the VAT change rollback on our systems and due care is being taken to attend to all technical changes so that there is no impact to any fees,” adding “any discrepancies will be rectified”.

An Absa spokesperson said: “Should there be any unforeseen customer impact, Absa will refund impacted customers and communicate with them directly.”

Derek Wilcocks, Discovery Group chief information officer, said: “While the sudden reversal had a small impact on Discovery’s internal processes, our systems and communications teams have implemented the necessary changes to keep VAT at the existing 15% across our services.

“We don’t expect the change to have any impact on our customers, but if a system error were to cause an overcharge, we would of course ensure it was remedied and they were refunded.”

marxj@businesslive.co.za