Hike in VAT rates. Retailers in dilemma

02 Jul '10

2 min read

Textile and apparel retailers in Spain are in a dilemma, on whether to pass on the increase in VAT rates to the consumer or absorb them, which will cut their margins. VAT will be increased from 16 to 18 percent in Spain from next Thursday.

However, most retailers are planning to absorb the hike, rather than pass it on to the consumers, considering that, as it is, consumer spending is low and an ultimate increase in prices at this juncture could send the wrong signals.

The 18 percent slab will be the highest in history ever since it was introduced, way back in 1986. At the end of deliberations to understand the impact, if at all the hike was passed on to the consumers, clothing retailers have decided not to hike their prices.

According to Angel Asensio, President of the Spanish Intertextile (CIE) and the Federation of Apparel Industries (FEDECON) said that the VAT hike will impact the entire textile and clothing value-chain of production and logistics across the sector.

Analysts are of the opinion that, while the Government's objective is to increase revenues and reduce the deficit, this measure could delay economic recovery. The Govt plans to mop up around €5,150 million in the first 12 months from the hike.

According to experts, big companies and retailers will not be affected as much by the hike, since they have economies of scale, but the axe will fall on the small and medium scale industries, which will not be able to absorb the hike in VAT rates.

Fibre2fashion News Desk - India

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