Government leaves South Africa’s biggest retailers hanging with a R1 billion bill

 ·27 Mar 2023

The Franchise Association of South Africa (FASA) says that the government’s recent move to give food manufacturers a refund on their diesel spend doesn’t go nearly far enough – leaving businesses big and small in the lurch, contending with multi-million rand fuel bills.

In his 2023 budget, finance minister Enoch Godongwana announced that, with effect from 1 April 2023, manufacturers of foodstuffs – excluding beverages and ingredients used to produce beverages and certain other foodstuffs – may claim back the prescribed portion of the Road Accident Fund of the price paid for diesel.

The effective refund is currently set at 80% of the RAF levy, and is only applicable if the diesel is used in the manufacturing process of the relevant foodstuffs.

“If diesel is used for a generator that powers any portion of or the whole food production process, then the producer can claim the relevant part of the Road Accident Fund levy paid. This will take effect from 1 April 2023, with refund payments taking place once the system is developed and will be in place for two years until 31 March 2025,” FASA noted.

While some businesses stand to benefit from this refund, most do not, the FASA noted, especially those who are key to ensuring food safety and delivery to consumers at large.

“Giving relief to only one section of the food chain is unfair to those retailers, transport businesses, QSRs and restaurants that rely on diesel to ensure food safety as it works its way to the consumer and who are also impacted by load-shedding,” the group said.

“While it’s important that food manufacturers get relief at the source of food manufacturing – what about the rest of the food chain? From the refrigerated trucks that transport the food to retailers to the food retailers who make sure to keep that food fresh and safe for human consumption?”

New diesel tax break for business in South Africa comes with a big catch

The fact that this new regulation applies only to pure manufacturing operations, and not to any premises at which wholesale or retail sales of foodstuffs take place has been criticised as being too selective and not taking into consideration the rest of the value chain that is also impacted negatively by high fuel prices and load shedding.

FASA said that retailers that rely on 24-hour generators must put in place long-term energy generation plans – and it’s costing them dearly.

“Just in the last few months of 2022, two of the country’s largest supermarket groups – Shoprite and Pick n Pay – spent a combined R906 million on diesel for generators at stores, with Woolworths adding another R90 million – taking it up to a staggering R1 billion,” it said.

These large retailers can at least afford to take the hit, the group noted, but smaller businesses do not have this luxury.

“Food retailers are already burdened with unrealistic energy increases, extended blackouts not only due to scheduled load shedding but also ailing infrastructure and constant cable theft in certain areas. The food retail sector has little choice but to run their generators and to insist on imposing road-related taxes which is an absolute injustice,” it said.

“Retailers simply can’t absorb these costs.”

In a franchise environment, where individual owners do not have the benefit of having a group ownership structure, FASA said these irregular and unexpected expenses are placing individual retailers under undue stress and destroying the ability of individual franchisees to grow and creating employment.

“The wholesale and retail sector employs 20% of the nation’s workforce, and this attitude reflects how little understanding government has on what it costs to secure the food value chain – or they simply don’t care.

“While the diesel levy refund is intended to alleviate some pressure off food prices, it doesn’t go far enough,” it said.

The group said that if manufacturers do not factor in the rebates into their prices, they will undoubtedly be passed down to the next tier – ie, wholesalers and retailers – which would then need to pass the costs on to end users.

Read: New diesel tax break for business in South Africa comes with a big catch

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