Businesses on edge as VAT hike looms

By Kopano Gumbi and Sisipho Skweyiya

For South African beverage company owner, Ndumiso Madlala, the impending value-added tax hike could spell trouble for his small-scale business that makes alcoholic ginger beer and non-alcoholic drinks.

The National Treasury plans to raise VAT by 1-percentage-point over two years from May 1, as part of measures to bolster government revenue. Currently, VAT is set at 15%.

For Madlala, the increase could force him to raise prices or lower margins, both undesirable options for a business like his in a tough economic environment.

“For us as small guys, you first hit a problem of being competitive on price,” Madlala told Reuters. “Big companies can just switch prices at any time, they can reduce their price to drive the volume up. For us, that’s something that we can’t do.”

The VAT increase comes as the South African economy faces several headwinds including a slow recovery following years of unstable electricity supply, domestic