For the coalition, it is the centerpiece of its economic stimulus package – but there is no clear enthusiasm in one of the industries it supports: the planned temporary reduction in VAT poses major challenges for retailers. “We are dealing with a comparatively high effort. This would cost a high double-digit million amount,” said the managing director of the German trade association, Stefan Genth. POS systems would have to be converted, price tags replaced and advertising redesigned.
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According to Genth, however, a so-called invoice discount is also possible: The prices of the individual items – around 15,000 in an average supermarket, or even 40,000 in large-scale supermarkets – would be posted on the shelf as before and the discount would only be calculated at the checkout. “You can reduce the total price at the checkout accordingly. This is legally and consumer law possible,” said Genth. However, it has to be shown whether there is acceptance among customers or whether a lack of price transparency is criticized.
In order to stimulate the economy, which was badly hit by the corona pandemic, the German government decided to lower the VAT rate from 19 to 16 percent from July 1st. The reduced VAT rate of seven percent, which applies to essential goods, should drop to five percent. The Bundestag and Bundesrat still have to agree to this. The regulation is limited until December 31.
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For retailers, however, this means that after six months all prices would have to be recalculated and awarded. In addition, according to Genth, a price increase is more difficult to convey to customers. “It would be fatal if three percent had to be added on January 1 and trading would remain at part of the cost.”
“This is very short notice, there are only three weeks left to change,” said the tax consultant and sales tax expert at the Bakertilly consultancy, Marion Fetzer. “This is a challenge for both large companies and smaller retailers.”
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With the retail chains, it was initially unclear how to prepare for the changeover in a few weeks. “We have a lot of work with it now. But we will face up to this task – and will pass it on to customers,” said a spokesman for the supermarket chain Rewe. Other chains such as Aldi, Lidl or Netto had already announced that they would like to pass the reduced VAT on to customers in the form of price cuts. The corporations have not yet announced how this should be done.
However, experts have great doubts that the majority of the reduction will be passed on to consumers. Especially in the catering trade, innkeepers would have to earn more per guest, so it is likely that they will leave the prices unchanged and thus increase their margin. Many retailers outside of the food trade also do not plan any general price cuts.
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The temporary reduction also brings changes for accounting in larger companies and all those dealers who use POS systems. The software group SAP, whose services many companies use for this, remains calm. “Changing VAT rates is an easy, lean process,” said a spokesman. Customers would only have to adjust the numbers in the relevant box.
“Large corporations that are active in over a hundred countries worldwide do this all the time – the logic of VAT is the same in every country, but the parameters change from time to time,” said the SAP spokesman. Customers are used to the fact that there is no increased demand. If they use the cloud software, SAP will initiate the change itself, and that is just a matter of hand.
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