The government’s recent announcement of a proposed gradual increase in the Value Added Tax (VAT) rate has sent ripples through the country’s small business landscape.
The increase, set at 0.5% for the fiscal years 2025/26 and 2026/27, will see the final VAT rate rise to 16%. This move is projected to generate an additional R28 billion in the first year and R14.5 billion in the subsequent year, but the implications for both consumers and businesses could be dire, particularly for those in lower-income brackets.
IOL spoke to a few small business owners to understand their position regarding the financial implications they will be dealing with following the VAT increase.
“This is a punishment, our leaders are failing us,” said Vusi Ngwezi, a tuck shop owner from Soshanguve.
Ngwezi's family owns multiple tuck shops around Soshanguve which have been operating since the early 1980s. The more recent ones were opened as the township kept growing.
As the oldest among the siblings, Ngwezi took over the running of the business when his parents retired, retreating to spending more time at home rather than running around keeping the business going.
“This is the only income I know. It has sustained our family for decades and continues to support the new families we have created as we get older. But with the way things are going, we are struggling to keep the business going," he said.
The 55-year-old said as it is, he's forced to take out loans to meet demands in the tuck shops because constantly increasing prices kills business.
"Customers complain and I understand them, most of them are unemployed, the tuck shops are in the township, and we know the rate of unemployment is severe among the black community. So instead of increasing, I make loans where there have been shortages just to make sure the shops keep running. I also have people who help me to run the tuck shops, and I have to pay them. Imagine if the VAT increases, what's going to happen, will my business even make profit?'' he asked.
He added that he's frugal in his spending, he doesn't live an expensive lifestyle because he has to ensure that the business remains sustainable.
"I compromise on my lifestyle, I make budget cuts where necessary because the survival of the tuck shops is important, this is the only income I know. It has sustained me all my life," he explained.
Ngwezi said the Democratic Alliance (DA) and other parties were against the VAT increase and if their option is explored, it would ease the burden on consumers and small business owners.
"If some parties were against the VAT increase, it means there are ways available to create revenue or staying afloat as a country without killing our businesses," he added.
Meanwhile, Siphiwe Katwai, who runs a cleaning detergent and hygiene products manufacturing business, said the VAT increase will definitely cause a bump in the prices.
"The other day I placed an order for raw materials that I normally use for my products and the bill was slightly higher. So, with a potential VAT increase, I will obviously be forced to slightly increase my prices, it's a ripple effect," she said.
Unlike Ngwezi, Katwai said she was not worried about her business shutting down due to increasing costs because it's a need to the public. Although a slight increase in prices might contribute to losing a few customers, she said she was certain that this won't cripple her business.
"The business will survive because I believe I'm running a business that is a need; people need to bathe and keep themselves clean and they also need to wash their clothes to look clean."
Outside of selling her products, Katwai said she also makes money by hosting workshops where she teaches people how to manufacture the products she sells and charges R300 per person.
"The workshops are also another way of making money without feeling the pinch of the VAT increase. In business, you have to be strategic in how you do things. You have to be multifaceted to stay afloat because we all know the economy is never stable, anything can happen and affect your business," she said.
sinenhlanhla.masilela@iol.co.za