VAT Increase: TTJA advises retail chains to adjust prices in good time

Supermarket. Source: Priit Mürk/ERR

According to Estonia's leading supermarket chains, from next year, the two percentage point increase in the VAT rate will start to be reflected in the cost of goods paid by consumers. As a result, the Consumer Protection and Technical Regulatory Authority (TTJA) is advising traders to start making changes to their prices sooner rather than later.

According to Ulrike Paavle, head of the Consumer Protection and Technical Regulatory Authority's (TTJA) enterprise department, the most important thing from a consumer protection point of view is to ensure that items sold in stores are clearly labelled with the correct pricing information. In other words, the cost of items on their price tags match the amount customers are charged for them at the checkout.

Paavle added that pricing strategies, including changes implemented to mitigate tax increases by raising costs for customers, are a component of the freedom of enterprise and the TTJA cannot interfere.

"This way, every trader can offset the cost of VAT increases in their pricing decisions in the way they see fit," Paavle said.

"It is understandable that in regular trade, changing prices overnight is difficult, especially for large stores, given that the prices of most goods are changed manually. Therefore, we have recommended that if a trader wants to increase their prices from January 1, they can already begin putting tags on their products earlier, which clearly show two prices - the price until December 31 and the price from January 1," Paavle explained.

Asked how the agency would view a situation whereby stores opt to raise prices by at least two percentage points as soon as this fall in light of the VAT increase, Paavle said that pricing is free in Estonia, meaning that the state does not interfere in setting prices. Any trader can therefore sell goods at whatever price they choose.

Supermarket chains finalizing plans to implement VAT increases

At Prisma Peremarket, one of Estonia's largest supermarket chains, the precise action plan to cope with the change in VAT, is still being finalized.

"Our aim is definitely to implement the changes resulting from the VAT increase in as customer-friendly a way as possible, and as close as possible to the date it enters into force. As our assortment is very wide, nearly 70,000 products, it will not be possible to make these changes overnight," said Kaimo Niitaru, assortment and procurement director of Prisma Peremarket.

"We have asked the state via the Estonian Traders' Association (Eesti Kaupmeeste Liit), for a transitional period, as was the case during the changeover to the euro. However, unfortunately on this occasion, no transitional period was granted. As a solution, the TTJA has suggested [we]start changing prices ahead of the new year, so that prices will be updated and in line with the new VAT rate by the beginning of next year," Niitaru said.

Niitaru added that Prisma as a store will not be able to fully absorb the costs resulting from  the change in VAT rate without raising some of its prices.

"The higher VAT rate will still be reflected in our prices," Niitaru said.

Kristjan Anderson, head of business accounting at another of Estonia's major supermarket chains, Selver, said that his company does not plan to use two-price tags on items in its stores.

"The first new prices will potentially come into effect from December, with most of the price changes resulting from the VAT increase happening in early 2024," Anderson said.

"The impact of the increased VAT rate will not affect the prices of all products in the same way. We will base our price changes on the general pricing principles employed by the company. For example, the prices of some products may go up by more than two percent, while there may also be products counterbalancing that for which there is no price change. Overall, price changes will be managed a way that means their impact does not outweigh that of the VAT increases," Anderson explained.

Marilin Jürisson, head of procurement at Rimi Estonia, said Rimi is also still in the process of a establishing a concrete strategy for re-pricing. "It will take some time for a more detailed roadmap to be finalized," Jürisson said.


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Editor: Michael Cole

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