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Supermarkets pass VAT burden to suppliers

21 Jan 2013 - {{hitsCtrl.values.hits}}

In a dramatic turn of events, the non - VAT (Value Added Tax) paying smallscale suppliers are to step up their collective bargaining power against leading supermarket chains in the country, for urging them to absorb the 12 percent VAT imposed by the Budget 2013.

To this effect, for the first time in the country’s history, these suppliers have united as a single association in a bid to make a stronger claim.

Last week Mirror Business ran a story quoting a top executive of a company which owns a supermarket chain saying—on the grounds of anonymity— that almost all of the retail chains operating in the country have decided to absorb the additional costs originating from VAT by themselves.

However, speaking on the unjust and arbitrary action by the retailers, a supplier on condition of anonymity said that starting from January 01, all the non-VAT suppliers were selling the products to the retailers at 12 percent less than what was charged prior to that.

“Essentially speaking we now sell a product worth of Rs.100 before, at Rs.88. We are not VAT liable and the supermarkets want us to bear the full brunt of the VAT which is unsustainable as it squeezes our margins. We cannot increase our prices either because the competition will send us out of the market,” he pointed out.

Meanwhile Mirror Business learns that letters sent by the supermarket chains for these non-VAT paying small scale suppliers who are in thousands and (in collective) fill the bulk of shelf space have been worded in an unfair manner.

One letter read, “…the percentage of VAT impact to our business (supermarket) which needs to be compensated by your company (supplier) for us to be viable to carry your product range in our retail business”.

Meanwhile another letter sent by another leading supermarket chain to its smallscale suppliers read: “The present weighted average margin given to us by your company (supplier) is 20.24pc, and we require a further 12 pc to offset the impact of the VAT”.

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Supermarkets pass VAT burden to suppliers

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