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Controversy brews over likely impact on lower VAT on food

Controversy brews over likely impact on lower VAT on food
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Value-added tax on food is likely to come down in the upcoming Parliamentary term, if the election promises of the Centre Party are borne out. The National Coalition Party, meanwhile, called in its campaign for the complete elimination of VAT on medicines.
      The aim of such moves would be to bring down prices, thereby helping pensioners and those with low incomes.
      However, experts disagree on the extent to which such cuts would be reflected in retail prices.
When VAT for barbers and hairdressers was brought down, the savings were only partially passed on to the consumer.
      Professor Ville Aalto-Setälä, formerly a researcher at the National Consumer Research Centre, emphasises that VAT is not the decisive factor in the price of food; the overall standard of living, wage levels, and factors such as the efficiency of logistics are more important in his view.
      However, competition between large grocery chains could make the tax cut beneficial for consumers.
      "As there are only a few large retailers in commerce, they have to pass on the tax cut to prices. If they did not do so, the consumer would see it immediately."
      Hairdressers, on the other hand, are generally very small enterprises, and their competitive situation varies from one community to another.
At the University of Turku, economics professor Matti Viren is "moderately convinced" that a five per cent tax cut would be passed on to food by a factor of 80 per cent, which means that the price of food would come down by 3.5 per cent.
      Under Professor Viren's guidance, the university has studied how changes in taxation in other European countries have been reflected in consumer prices. When Sweden and Norway reduced VAT on food a few years ago, 75 per cent of the discount was passed on to consumer prices.

Previously in HS International Edition:
  Study: Reduction in VAT would bring lower food prices (26.9.2006)
  Sharp cut planned in VAT for small businesses to reduce prices and create jobs (9.2.2006)

Helsingin Sanomat

  22.3.2007 - TODAY
 Controversy brews over likely impact on lower VAT on food

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