Full impact of VAT increase to
be expected by February
By Matthew Vella
The increase in VAT to the new 18 per cent rate is yet to make a full
impact on shops and businesses around the Islands, according to General
Retailers and Trade Union Director-General Vince Farrugia.
January will turn out to be a period of re-adjustment as retailers brace
themselves for the start of the new commercial season while the Christmas
sales run into their final days. In some cases, certain retailers took
the opportunity to increase their prices over and above the adjusted
Vince Farrugia told this newspaper yesterday that the real impact of
the VAT increase had yet to be judged: "We are in a transitional
phase, and it still is too early to judge what the real impact of the
new VAT rate is. Being the first month with the new rate, retailers
and traders are waiting for the start of the new season when it is expected
that all shops would have adjusted their new stocks according to the
18 per cent rate."
Farrugia said that following the Christmas period, consumers are enjoying
the slashed prices of the sales, whilst retailers were removing their
old stock and preparing to re-stock: "That is why the GRTU asked
the Finance Minister to introduce the increased VAT rate in February
of the new year and not at the start. In that manner, the increased
prices would have coincided with the period of re-stocking, whilst providing
the chance for retailers to adjust their prices."
The January rush to adapt to the new VAT rate has seen certain retailers
absorbing the increase in VAT from 15 to 18 per cent on their old stocks,
a measure which is only expected to last until February, according to
Vince Farrugia: "Again, this will be a short-term absorption for
retailers. Shop-owners are changing prices as new stock comes in. Our
regular survey with our members has confirmed this practice."
Stores such as BoConcept in San Gwann, and mobile telephony companies
go mobile and Vodafone announced they would be absorbing the VAT increase.
Farrugia said that throughout the month retailers profit margins
will be affected through the temporary absorption of the increase.
"January is traditionally a lean period following the Christmas
season. In fact this year we experienced a mini-boom, especially in
terms of white goods and domestic appliances. Pre-empting the VAT increase,
consumers rushed out to buy electrical appliances in December. As always,
a fat period will be followed by a lean period, which is to be expected
in the coming month."
Farrugia said that since the rate of inflation of abroad and in Europe
was currently not high, prices were not expected to increase a lot in
terms of importation. He added however that the price elasticity of
products had to be taken into consideration: "A VAT increase could
have little impact on the majority of VAT-rate foods. Other products
could be impacted greatly by an increase in price."
In a reminder to shopkeepers, Farrugia said that cash registers, currently
undergoing transposition to the increased VAT rate, could be adjusted
by technicians certified by the VAT department. He said the government
was charging Lm12 for a "five-minute job" and that retailers
were now allowed to employ appropriate technicians, following talks
with the Ministry of Finance and Economic Affairs.