VAT reduction having limited impact on prices

The prices of some popular supermarket items have not dropped significantly following the introduction of reduced VAT, a month after the intended consumer relief measure kicked in, data from the consumer protection service shows.

The measure does, however, appear to have stabilised their prices according to a report by Philenews.

Some staples which reached significantly marked-up prices throughout the past year, continue to be sold at, or just below, these increases, including fresh milk, with a 14 per cent increase, baby nappies, up by 32 per cent, baby food and baby milk, up by 23 per cent, eggs, up by 27 per cent, bread up by 20 per cent, and female hygiene products, up by 8 per cent.

The state’s decision to impose zero VAT on the above products until October 31 was expected to reduce costs, especially for young families, due to the reduction on nappies from 19 per cent VAT to zero.

However, price reductions were offset by concurrent increases in supplier charges shortly before the measure’s implementation in four out of seven categories where the rate was zeroed, namely, baby foods and milk, and baby and adult diapers.

In total 1775 product codes had been categorised under the zero VAT umbrella.

The consumer protection service has investigated complaints relating to ongoing high prices in specific brands of baby diapers and baby food, said Constantinos Karagiorgis, the service’s head.

He explained that the consumer protection service had started monitoring prices since April 24, before the implementation of the measure, and from then on, on a weekly basis, in order to assess its proper implementation.

From the checks to date, it is clear that the measure was applied universally with an overall positive impact for consumers, especially families with small children.

Prices do vary between retailers, so consumers are cautioned to do their own research and switch to another product as soon as a price increase is observed in a specific item, the consumer protection spokesman advised.

According to Karagiorgis the phenomenon of higher prices on specific products, following the temporary VAT abolition, is not due to price hikes but coincided with the end of a planned promotion period.

Karagiorgis also noted that the cost of certain products supplied from abroad has increased three times since September 2022, due to shortages and reduced factory output, the shortage of cereals, and restriction of routes from Europe to Cyprus, which have seen transportation costs rise by 8-10 per cent.

Meanwhile, the finance ministry is preparing a new list of items to be sold at a reduced VAT rate of 3 per cent in hopes of easing the high cost-of-living for consumers.