‘Businesses fail to pass on VAT cut’

MANY businesses have been reluctant to pass on the recent cut in the VAT rate on items such as coffee, takeaway food and cinema admissions, according to a tax expert.

This news comes as Topaz admit it did not pass on the VAT reduction on coffee — which is believed to be one of its bestsellers.

In theory, the reduction of the VAT rate from 13.5% to 9% should have resulted in a noticeable saving for consumers, according to VAT specialist, Conor Condon of Taxback.com.

He said, however, due to the unprecedented economic conditions, many businesses supplying services subject to the reduced rate have been reluctant to pass the VAT saving on to customers.

“Having spoken to some of our clients and through our own everyday experiences, we have found that initial reaction to the VAT rate change has been mixed.

“Some businesses reduced their prices immediately and passed on the savings; others have publicly and blatantly refused to pass the VAT saving to their customers citing the fact that they simply cannot afford it. In a lot of instances, businesses will not pass on savings on tea or coffee, for example, as the saving is minimum and it costs more to change the pricing,” said Mr Condon.

He said the real problem is around enforcement of the VAT rate change and as a result businesses feel they can “get away” with not passing on the VAT saving.

He said Revenue will be reviewing this situation and will decide in 2012 if the rate change is to continue.

“In the meantime, the only real pressure can come from the consumer when buying services from reluctant businesses,” he said.

A spokesman for Topaz said that prices of coffee and milk had risen “significantly” in recent months and the company made the decision not to pass on these increases to customers as it was aware the VAT reduction would be coming into effect on July 1.

While the new VAT rate (9%) applies to newspapers and magazines it does not apply to a wide range of products including all fuels, shop goods, all cold food or bakery products including pastries, muffins, scones etc as well as drinks served with food.

The new rate is aimed at reducing costs on services such as catering and restaurant supplies, to boost business in the tourism sector.