Comeos assures that lowering prices in the retail industry is currently not possible
Belgian domestic trade federation, Comeos, has recently stated that reducing prices in the retail sector is impossible at this moment, despite the decrease in value-added tax (VAT) from 21% to 6%, according to The Brussels Times. The federation claimed that lowering prices would have to depend on inflation and competition factors.
The VAT reduction
The VAT rate was reduced from 21% to 6% for six months from June to December 2020. Belgian Prime Minister Sophie Wilmès hoped that the VAT reduction would boost consumption and get the economy back on track, especially after the economic slump brought on by the COVID-19 pandemic.
Why Comeos claims lowering prices is impossible
The VAT reduction may seem like a good way to reduce prices, but Comeos does not agree. The federation states that with the current health crisis, a price drop is not possible. Pricing has to depend mainly on competition and inflation, which are not under the control of the retailers entirely.
Comeos also stated that, at least in the short term, retailers would not benefit from the VAT reduction. They claim that some suppliers are still charging the same still-high prices despite the VAT reduction, and each retailer has to buy their goods from those suppliers to keep their shelves full. Retailers also have additional COVID-19-related costs, such as store cleaning or staff training, which could hinder them from offering discounts.
Competition and Inflation Factors
The Belgian domestic trade federation’s argument that competition and inflation are the primary price determinants is valid. Inflation is a steady increase in the general price level of goods and services in an economy over a certain period. Meanwhile, competition between retailers introduces better pricing for consumers. Firms need to be able to offer competitive pricing to attract customers.
However, in the current economic environment, the competition may not always lead to lower prices without repercussions. Retailers may have to bear additional costs that may not allow them to offer lower prices.
The Belgian retail sector is still reeling from the economic impact brought on by the COVID-19 pandemic. While the VAT reduction has dropped from 21% to 6%, Comeos argued that lowering prices is not currently possible. Supply chain issues and additional COVID-19 costs may limit retailers’ capacity to offer discounts. Factors such as inflation and competition will continue to impact prices in the Belgian retail sector.
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