Will Food Get Cheaper after VAT Cut?

Total Croatia News

Retailers promise they will cut food prices.

After parliament adopts the bill that will lower VAT on basic foodstuffs starting from 1 January next year from 25 to 13 percent, the food groups covered by the bill will be cheaper and the citizens’ standard of living will increase. At least, that is what Finance Minister Zdravko Marić argues. However, many people wonder whether the retail chains will indeed lower their prices, reports tportal.hr on September 29, 2018.

Retailers are not obliged to lower their prices due to the lower VAT. They can simply leave the retail prices as they are and pocket the difference. Agriculture Minister Tomislav Tolušić has already presented a somewhat bizarre proposal to monitor retailers; he has threatened to publicly name and shame all those who will not lower their prices so that citizens would know where they should not buy.

There is fierce competition in the Croatian market and retail chains are fighting for every consumer. Lower VAT will surely open up space for them to lower prices and to launch various promotional drives to bring in the customers.

Kaufland and Lidl, who are members of the Schwarz group, said that they definitely plan to adjust their prices to the full extent of the VAT reduction. “If such a law is passed, Lidl’s customers will fell the tax relief on products subject to the reduction in VAT rate,” said the company.

Ivica Katavić, the CEO of KTC, said that it is wrong to think that retailers will try to increase their profits by misusing lower VAT rates. “As many times before, there are attempts to present the retailers as people responsible for everything wrong that is happening. We used to be ‘responsible’ for high prices of milk and fruit, so we expect a day to come when retailers will become responsible for floods and earthquakes. Of course, as always, we will implement the price changes as a consequence of tax cuts. Those who do not do it deserve to be publicly shamed,” said Katavić.

The largest Croatian trading chain, Konzum, warns that the retailers are just the final link in the supply chain, in which everyone has to incorporate a VAT cut in their prices for the end consumers to eventually see the benefits.

“If all of our suppliers comply with good business practices, we will be able to fully forward the VAT cut to customers by lowering end prices. Konzum will certainly not use the VAT reduction to increase its margins and, as we said, we can only hope that others will behave in the same way,” said Konzum.

Finance Minister Zdravko Marić pointed out last week that, after the VAT cut, the average Croatian family would save 872 kuna a year. However, Marić also noted that the government had no mechanisms to force retailers to reduce food prices, but believes that everyone will still do it due to strong market competition.

Translated from tportal.hr (reported by Nikola Sučec).


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