Screws tighten with VAT hike

THERE was more misery for consumers yesterday as VAT rose by one percentage point to 18 per cent, bumping up the already high cost of electricity and fuel.
It was the second increase in VAT in 10 months, in line with measures included in a preliminary bailout agreement with international lenders.
In March last year, VAT went up by two percentage points to 17 per cent. It is set to rise to 19 per cent in 2014.
The new rate will affect the price of a number of goods and services including petrol, electricity, telecommunications, alcohol, tobacco, and clothes.
The reduced VAT rates of 5.0 per cent on food and drugs and 8.0 per cent charged by hotels, restaurants and public transport, remain unaffected.
However, from January 2014 the 8.0 per cent VAT will go up by one percentage point.
The VAT service said it expected to collect an additional €30 million.
The state put some €1.7 billion in its coffers last year through the VAT, about the same as in 2011 when VAT was two percentage points lower.
The rise in VAT also bumped up the price of fuel, which already saw a rise of between five and seven cents on consumption tax the first day of the year.
According to the petrol station association, unleaded 95 petrol was yesterday selling at about €1,36 per litre from €1,35.
Unleaded 98 was €1,40 and diesel hovered around €1,42.
Heating fuel rose to €1,05 while kerosene edged up to around €1,12.
The VAT hike prompted wide concern from the public yesterday.
“It will cause a domino effect in the economy starting with the rise in the price of fuels,” said Prokopis, a shop salesman on Ledra Street in Nicosia. “Things will get more difficult as salaries remain the same while the prices of products rise,” added the 30-year-old who did not want to give his last name.
Mattheos Michael, 55, a Nicosia restaurant owner said he would not raise his prices but would absorb the additional cost himself. “I have customers that come every day for 20 years; I didn’t increase my prices last year (and) will not raise them (now either),” he said.
A 60-year-old jewellery shop owner said that the VAT increase would worsen the already low demand for consumer goods “There is no cash flow in the market, how will making goods more expensive help the economy?” he asked. With no help from the government, small businesses will foot the bill of the economic situation, as has always happened.”
A 24-year-old saleswoman for another shop on Ledra Street said the VAT raise also created other problems.
“We have to work overtime and change the price of every single item we have in store.  That’s a lot of work especially if you take into account that this is the second time we’ve had to do it in less than a year,” she said.
Retired civil servant Andreas Petrou, 60, said he would not be as affected as much as younger people or the unemployed. “For a start, I don’t use my car much, and I don’t smoke,” he said.