Facua-Consumidores en Acción has sued seven distribution chains for the Spanish competition watchdog CNMC. This is because they have not passed on the VAT reduction on all foods that fall under the reduction measure. The government announced this last week to counter the impact of inflation on consumers.
Specifically, the association analysed the price evolution of a total of 676 products. These were in Alcampo, Aldi, Carrefour, Dia, Eroski, Lidl, Hipercor and Mercadona from December 30 to January 3. In its analysis, the consumer organisation concludes that in 51 cases no price reduction equal to that of VAT has been applied. For example, 34 prices are identical to those at the end of the year. Furthermore, 10 do not affect the full tax credit and seven are even higher.
Price monitoring campaign
The Consumers’ Association has indicated that this is the first phase of the price monitoring campaign it has launched. And, furthermore, it will continue to develop this in the coming months. In this sense, Facua recalled that stores cannot raise the prices of products covered by the measure until the end of April. If the underlying VAT for the month of March is not lower than 5.5%, that period will be extended by another two months. Only justified increases in cost increases are legal.
According to the report, the establishments with the most irregularities are Día, with 17%, and Carrefour, with 10%. Meanwhile, no anomaly was identified in Mercadona and only one product in Hipercor.
In this way, the largest number of anomalies are localised in Dia; with 14 irregularities in the 81 prices, in nine cases due to rounding up. Carrefour follows with 113 prices analysed, in 11 cases no VAT reduction was passed on.
Then follows Eroski with eight incorrect prices out of a total of 92 prices analysed. In Alcampo, six prices of the 96 prices analysed with irregularities were found, in two cases due to rounding up.
At Lidl, six of the 70 prices have also been observed to be higher than they should be with VAT reduction. In Aldi, five cases out of 64 evaluated prices have been reported, while in Hipercor there is only one overprice out of a total of 76 products checked. In Mercadona, the organisation has not found any irregularity in the 84 foods whose prices were compared at the end of December with the current ones.
Most common irregularities
According to the report, the irregularities found in most cases consist of consumers paying the same amount as before the VAT reduction. That way, that reduction is used to increase the chain’s profit margin.
Facua has also found that there are products whose selling price is even higher than that of the days before the measure entered into force. There are also cases where the reduction is smaller than what would have to be applied if the tax reduction were passed on in full. For example, prices are rounded up to add only one cent in some cases, when in reality prices should be rounded down.
Facua has requested that the CNMC investigate the practices and initiate appropriate disciplinary proceedings to determine whether the prices applied to represent an increase in operating profit margins or are justified by increases in the cost of products.
What the law says
The Royal Decree-Law 20/2022 of 27 December states that “the reduction of the tax rate fully benefits the consumer”.
Which products are concerned
According to the standard, from 1 January 0% VAT is applied to the following foodstuffs on which 4% was levied:
- Flour for making bread
- Fruits, vegetables, legumes, tubers and grains
The VAT on olive and seed oil and pasta will be reduced from 10 to 5%.
Article 72 of the aforementioned Royal Decree indicates that on May 1, VAT of 4% and 10% will again be applied to these foodstuffs. That is if the annual underlying inflation rate for the month of March, published in April, is below 5.5%”. If not, the measure will remain in force until the end of June.