Absorbing new VAT increase could cost retailers up to €1,250 per month
The CSNA urges retailers to think carefully before deciding to absorb the half percent VAT increase
9 December 2008
Retailers need to carefully calculate the impact of the recently announced VAT rise on their business before deciding whether to increase their prices or absorb the cost themselves, the CSNA has warned.
“People need to inform themselves of the effect from a revenue point of view of not raising their prices. [The] Revenue [Commissioners] will have the expectation that sales will carry 21.5% from 1 December onwards. So whether or not you put up the price, you’ll still have to make your VAT return as if it had 21.5% on it. You won’t have the option of saying ‘But I didn’t raise the price’,” says Vincent Jennings, chairman of the CSNA.
Jennings adds that where they decide to absorb the VAT increase, retailers should balance the perceived benefits – in the form of goodwill from customers – against the revenue foregone. Although 0.5% may seem like small change, a convenience store turning over €50,000 of VAT-rated goods a week would be down €1,250 in a five-week month if it decided to absorb the VAT increase rather than pass it on to customers.
Not every product sold is liable for VAT but the categories that are include big sellers such as alcohol, cigarettes, newspapers and confectionery.
“I don’t believe we should be Santa Claus,” comments Jennings. “These are hard times and the 0.5% is as well off being covered for. It’s not as if we’ll make anything out of it; why would you be costing yourself money?”