NOffLA speaks – Taxpayers subsidising multiples
Evidence suggests that a substantial amount of multiple volumes have been sold at below cost resulting in a huge loss to revenue in the form of VAT credits
15 December 2010
The National Off-Licence Association has appealed to the Minister for Finance to tackle supermarket discounting which results in Irish taxpayers funding the marketing activities of multiples.
In a budget submission to the Minister for Finance, NOffLA has called for an end to the VAT subsidisation enjoyed by below-cost sellers. The association believes that retailers should not be allowed reclaim VAT on the loss they are making on products that they choose to sell at below cost purely to drive footfall into their outlets.
Typically, a bottle of wine, selling at €8 often may cost the outlet €10. This loss of €2 includes a VAT portion of 35 cent which is refunded to the supermarket by the Revenue Commissioners on foot of this artificial sale. Given the large scale sales involved in these “loss leaders” marketing gimmicks, it is very easy to accumulate sales in the thousands, where each 1,000 bottles sold costs the Irish taxpayer €350.
Any item sold below cost (not just alcohol), which is subject to VAT, use these VAT credits to defray the cost of these below cost promotions. The Irish taxpayer is already burdened with enough in these difficult times without having to supplement the sales tactics of large multiples. It is also an inherently unfair sales practice that, due to the necessary economies of scale, below-cost selling is only the preserve of large-scale multiples.
Multiples selling below cost last Christmas?
Deep discounting by the multiples, in wine alone, during Christmas 2009 resulted in multiple volume growth of 12.5% while independent off-licence volume declined by 12% in the same period. Interestingly, from a VAT perspective, this only translated into a value growth of 3.5% in the multiples as opposed to a value decline of 16% in the independent sector. This would suggest that a substantial amount of multiple volumes were being sold at below cost resulting in a huge loss to revenue in the form of VAT credits created by below cost retailing and this is of just wine alone.
This loophole, as well as the huge buying power of the multiples, is making the survival of the small independent retailer untenable.
Coaxing customers into supermarkets
The sale of alcohol in supermarkets is used to coax customers into the shop where they will purchase other goods on which the multiples will make their profits. The impact of this practice cannot be overstated. The alcohol market in Ireland is worth over €6 billion each year, while Tesco alone accounts for 50% of the off-licence trade in Ireland.
This practice is in complete contradiction with stated government policy on the responsible sale of alcohol. Research shows, time and again, that the cheap availability of alcohol encourages irresponsible consumption. Here is an instance where, not only is government policy being ignored, but the taxpayer is funding it!
NOffLA members want to sell alcohol, but, as professional retailers, they have no interest in doing so at a cost to society. Cheap alcohol based on volume purchases appeals to the most vulnerable of customers and professional retailers neither need, nor want, that type of business.