Recently we have noticed a few retailers displaying notices in their stores stating that even where shelf prices have not been updated to reflect the updated value added tax (“VAT“) rate on certain products (now being 15%), and the shelf display price still reflects VAT to be 14% on that product, consumers will be charged for those products at the new VAT rate of 15% at the till point. In practice it means that the price on display may be R114 but at till point the price would be R115. From a Consumer Protection Act (“CPA“) point of view, this raised a few concerns, the biggest being whether a consumer can be legally obligated to pay a higher price than the price displayed.
The VAT rate increase
For the first time in many years, the VAT rate was increased from 14% to 15% on all taxable goods or services supplied by VAT registered vendors, effective from 1 April 2018. Although the increase is only 1% (which seems like a negligible amount), this will have a large impact on consumers and businesses alike, and according to estimates, will ultimately bring in an estimated R22,9 billion for government.
The VAT increase started to apply on1 April 2018, and you can expect to pay VAT at the new rate on any invoices issued or payments made from 1 April 2018. However, if goods were supplied or services rendered before 1 April 2018, you will not be required to pay VAT at 15% on those goods or services, even if only paying for them after 1 April. Therefore, where you are paying for services in arrears or purchased goods on credit during the interim period (22 February 2018 – 31 March 2018), make sure that you are paying the correct VAT rate for those goods and services, even if you are only paying for them after 1 April 2018.
The CPA provisions on prices
The CPA, in section 23(3), requires suppliers to display the price in relation to any goods that are displayed for sale. Further on in section 23(6), the CPA states that a supplier must not require a consumer to pay a price that is higher than the displayed price or, where more than one price is displayed for the same good/service, the supplier must not require the consumer to pay the higher of the two (or more) prices.
Therefore, suppliers are required to display the price that the consumer will pay for goods/services when displaying goods/services for sale and must not require consumers to pay more than this displayed price – “the price you see is the price you pay”.
However, section 23(7) states that subsection (6) does not apply where the price of any goods or services are determined by or in accordance with public regulation.
Applicability in practice
When reading the CPA, it is clear that, as a consumer, you should only be required to pay the actual price displayed and the lowest price displayed where there are multiple displayed prices. However, section 23(7) of the CPA “throws a spanner in the works” with the VAT rate increase and the requirement to pay a price that is more than the displayed price.
The VAT Act is “public regulation” for purposes of section 23(7) of the CPA, and where suppliers are VAT vendors, VAT will be added to goods and services and VAT will therefore be a determining factor used to calculate the price of goods and services. So, the rule that the supplier may not charge an amount higher than the price displayed will not apply in the scenario where the displayed price differs to the amount charged due to the VAT increase.
Further to this exception in section 23(7) of the CPA, the commissioner for SARS granted permission, in terms of proviso (iii) of section 65 of the VAT Act, for suppliers to require consumers to pay the increased VAT rate on goods and services despite the displayed price still indicating that VAT is included at 14% PROVIDED that the supplier prominently displays notices at the entrances to the premises and at all points where payments are made (i.e. consumers must be aware of these notices when in the store).
Generally speaking, consumers do not have to pay a higher price than the price displayed and where there are two prices for the same product displayed, the consumer can insist on paying the lower price.
Regarding the VAT increase, this CPA “right” is not available where the supplier has adequately notified consumers that the displayed prices may differ from prices at till point – due to the VAT increase. Suppliers have until 31 May 2018 to ensure that their shelf display prices have been updated to account for the VAT increase and to remove the notices in store that shelf and till prices may differ.