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 VAT-rated price.
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 retailer’s 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.