Saturday, 8 August 2015

"Airport VAT rip-off on duty-free sales that nets millions of pounds for top shops"

From The Daily Mail:

Top British retailers were last night accused of making millions from tax discounts on duty-free sales at airports – without lowering prices for travellers.

They examine boarding passes to see if passengers are travelling outside the European Economic Area, which allows them to avoid paying 20 per cent VAT on goods.

But few retailers pass the savings on to customers, with the result that products sold at airports are often the same price as on the high street, it was reported.

Of course. Entirely predictable.

A tax is borne by whoever is less price sensitive (supplier or consumer) and a subsidy accrues to whichever factor of production is most fixed in supply. All these people who say "the consumer pays the VAT" have just fallen for the propaganda.

So the retailer bears the VAT and the retailer benefits from the VAT reduction as above. The actual gross selling price is fairly fixed. Which is also what they noticed when they reduced the VAT rate on hospitality in some EU member states a few years ago. Actual food and drink prices didn't go down much, but output and employment increased significantly.

But the airport owner can charge correspondingly higher rents to soak up that extra profit. So the government claws back some of those higher rents in Business Rates.


Random said...

Bayard said...

Can't see the point of this wailing. If duty free is no cheaper, just don't buy from them. If it is cheaper, what are they complaining about? It's just another manifestation of the "cost-plus fallacy".

Mark Wadsworth said...

R, so what, those are the rules.

B, because they are not doing what they are expected to do! This is the clash between politics and economics.

Curtis said...

"Duty free" in the UK basically means "airport shopping". It's certainly not cheaper than Amazon, and you have to take your goods away with you and then back home again! If buying for someone at your destination, it will be cheaper to buy there.

L fairfax said...

"But the airport owner can charge correspondingly higher rents to soak up that extra profit."
I think that is true. In the book Airport Babylon they call BAA Build another Aisle.