This is a follow-up piece to a previous commentary published January 3, 2019.
Several Eastern European countries have been flirting with various forms of a “retailer tax.” This tax is similar (but not equal) to the value added tax (VAT) and the sales tax. The proclaimed aim of the tax is to “punish” international retail chains, who have been repeatedly blamed for problems of local farmers and the local food and beverages industry. In reality, it primarily hits consumers.
The tax was implemented in Poland, Hungary, and since January 1, also in Slovakia. I have described the prolonged battle against this tax in my Atlas Network commentary a few months ago. While it seemed the battle was lost, hope never dies. This saying proved true in Slovakia! The tax was abolished at the beginning of April after being valid only for slightly more than three months.
The autumn campaign against the tax, which was led by informal coalition of INESS, several industrial and employer alliances, and some pro-market parties (even the trade unions complained about the tax), managed to thrash the official government rhetoric. The public understood that the tax would primarily hit consumers, while the media dubbed the tax as a “food tax.”
In February, price level statistics for the previous month were released. January was the first month with the tax valid, and food prices recorded their highest rise in the past 12 months. Even official reports from the Ministry of Finance and the Statistical office contributed about one third of the food price growth to the new tax.
The tax was also a huge distortion of the market. By including a number of complicated conditions, the tax was carefully carved to hit only several international retailers, while local retail chains remained intact. INESS prepared several analyses of the competitive environment and mapped several real-life examples. Two equal stores across the street have a different tax applied due to the new law. These analyses were provided to the European Commission (EC), which opened an in-depth investigation into the tax and few days later suspended it.
The government could have opted to go into a lengthy legal battle with the EC. However, public opinion was strongly against the tax. The main proponent, the Slovak National Party, had been losing popularity in the polls. The EC decision was used as a handy opportunity for them to back off without losing face.
The story of the retailer tax has been a morale booster for INESS and all market-conscious stakeholders in Slovakia. Concentrated and persistent effort can prove to be successful. This rise in morale will be more than needed, because with incoming 2020 parliamentary election, terrible policy ideas will start sprouting all around…