Airports Not Passing On VAT Exemption

by Amanda Banks, Tax-News.com, London

18 August 2010

A new report by Kelkoo, an online price comparison portal, shows that tax free goods across Europe’s 10 busiest airports are just 6.2% cheaper than their equivalent taxed goods in high street stores, revealing that airport retailers are in fact not passing on the full VAT exemption to the consumer.

The research, focusing on the ten busiest airports in Europe, found London Heathrow to offer the lowest cost savings of just 3.1%.

Kelkoo’s report, produced by the Centre for Retail Research, examines the difference in prices between high street stores, tax free shops in airports and online retailers across Europe. The study focuses on tax free shopping (free of value-added tax or VAT) for travellers whose journeys start and end within the EU, rather than duty free shopping (free of VAT and excise duty), which was abolished in 1999 by EU member states and is now only available to travellers starting or ending their journey outside the EU.

The research found Heathrow to offer the worst average tax free savings in Europe, followed by Berlin Schoenefeld at 4.6%. Gatwick placed fifth, with below average savings of 5%. French airports were found to offer the highest savings; Lyon St Exupery had discounts of 11.9%, closely followed by Charles de Gaulle, Paris (11.5%). British airport retailers are the most expensive for luxury, fashion and electrical goods, whilst Spanish airport stores have the highest prices for health and beauty products. Wines and spirits are dearest in French airports.

According to the research, the gap between what is expected by the majority of UK consumers, and what is actually offered, is very significant. Kelkoo found that 59% of those shopping in airport terminals were under the impression that they were receiving savings of around 20% by purchasing goods at tax free stores in departure lounges.

With the average tax free saving in airport departure lounges at 6.2%, and the average standard rate of VAT In Europe at 17.4%, the report demonstrates that retailers in Europe are not passing on the full VAT exemption to the consumer. In the case of the UK, for instance, consumers should be receiving a price reduction of 14.9% on the Recommended Retail Price (RRP).

Tax free shopping is big business for European airports, with consumers spending over GBP2.5bn last year alone, making savings of 6.2% (GBP168m) compared to standard high street prices. However, by shopping online for the same goods, consumers could have saved a further 6.1% (GBP156m).

Commenting on the report, Bruce Fair, Managing Director of Kelkoo UK, stated: "Airports create the perfect environment for shopping, as people have time to kill, a holiday feel-good-factor, and extra cash in their pockets. However, they don't always create the most competitive environment for prices, and eleven years on from the end of 'duty-free' there is still the perception that tax free shopping offers the best deals. In reality, higher overheads, decreased competition and less choice means that 'tax free' shops are not always the hunting ground for bargains that people think they are. In fact, airport retailers simply cannot compete with online retail for the best prices."

"It is evident that 'tax free' shops no longer offer the most competitive prices in Europe. Although the two largest tax free sectors, namely health and beauty, and luxury, fashion and electricals, still offer the captive airport shopper positive savings against high street prices ranging from 6% to 10% on average, buying the same goods from online retailers can save consumers 12% and 13% respectively.”

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