‘VAT changes raising prices of basics

Audrey Galawu

ASSISTANT EDITOR

National Foods Holdings Limited said the changes made to the Value Added Tax status of many of the operation’s products during the first quarter of 2024 will make it increasingly challenging for the formal sector to compete against the informal sector and grey imports.

As the quarter began with a number of changed to the fiscal policy implemented by authorities, the group’s flour, maize meal, salt and stockfeeds divisions were negatively impacted.

The changes saw the VAT status of most basic commodities being changed from zero-rated to exempt.

Post the quarter-end, IMMT was increased from 1% to 2% on USD transactions, placing further pressure on the value chain.

The effects of the changes, while output VAT is not charged on selling products, the input VAT incurred in the production of these goods can no longer be claimed and has therefore become a business cost.

In its trading update for the quarter ended March 31, 2024, NFHL revealed that the group increased costs within the business by around 3% as a result of the financial impact caused by the fiscal changes.

“Management continues to work on solutions that will assist in shielding the consumer from the impact of this policy change through cost reduction and procurement costs savings and efficiencies.

“In addition to the above, the VAT status of rice was changed from exempt to standard-rated, increasing its cost by 15% to the consumer. This was an unfortunate policy changes as rice is a key basic food item for many consumers.

“The above measures impacted volume momentum in some categories, notably Flour and rice reducing the quarter under review,” reads the report.

The group’s volumes for the third quarter at 145 000 tons were 5% above last year, with strong performances in maize and snacks offsetting the losses in flour and rice. Revenues for the quarter at US$89 million, were flat against last year.

On a year-to-date basis, volumes at 430 000 tons were 3.9% above the comparative period. Revenue for the 9-month period amounted to US$261 million, 2.2% ahead of the same period last year.

“Flour volumes were impacted by the price of bread which momentarily breached the key US$1 per loaf price point following the change in VAT status. Following the decision by bakers to revert to the original price point and to ingest the additional cost incurred, thereby considerably reducing margins, volumes have recovered somewhat.

“Momentum in the Stockfeed category slowed following the imposition of VAT on meat products. Maize volumes were firm, following last year’s poor harvest.

“Downpacked volumes were impacted by the imposition of VAT on rice as well as the continued high global raw materials prices with India’s export ban remaining in place.

“Snacks and CCB volumes showed encouraging momentum as the capacity enhancements were commissioned,” further reads the report.

The group pledges to ensure adequate stocks of competitively priced, basic goods, for the consumer across the country.

NFHL also revealed that the group is expecting to commission a new biscuit line next month.