23% VAT will weigh on telecommunications and IT

Transfer of pension fund will cost PT 71.5 million

(Updated) With no end in sight, the economic crisis is expected to continue to negatively affect sales of products in the area of ​​telecommunications and consumer electronics. And prices do not help, with public sale values ​​(PVP) rising with the adjustment of the Value Added Tax (VAT) to 23%, already approved with the State Budget for 2011.

The perception that sales will go down but that VAT will be reflected in prices, forcing values ​​to rise, was transmitted to TeK by several telecommunications operators and manufacturers of mobile phones, computers and consumer electronics. This time the general intention is contrary to what happened in June, with the VAT increase to 21%, where most of the agents ended up not increasing prices.

Zeinal Bava, PT’s president, was one of the first to be questioned on the subject, yet the 23% VAT increase had not been approved by Parliament. Speaking to Agência Lusa, PT’s president admitted that the operator will have to reflect this increase in values ​​practiced with customers.

A few days later, José Pereira da Costa, Zon’s financial administrator, said, at a conference of analysts regarding the presentation of the company’s third quarter results, that «whatever the increase set for 2011 […] Zon has already decided that it will pass it on to customers, as already announced by mobile operators «.

In June, when VAT rose by one point to 21%, some prices at Zon remained, while others were updated, such as the Digital Selection Service, the base package and the purchase of ZON BOX Packages Funtastic HD, which went from 29 , 49 to 29.74 euros.

Questioned by TeK, Vodafone and Sonaecom also admitted their intention to reflect the VAT change in prices. Even before the measure was approved, Vodafone Portugal explained that «it should reflect the new VAT rate in final prices for Customers» and recalled that in the last VAT rate increase, on July 1, 2010, it decided not to increase the price sales of mobile phones, internet access cards and other telecommunications equipment to the public, which meant, in practice, a reduction in the price of equipment without VAT, so that, applying the higher tax rate, the same final price would result. the clients.

In the operator’s tariffs and services this change in VAT was generally reflected, with some exceptions, namely the values ​​of mandatory monthly charging of rechargeable plans, Internet Additives and rechargeable Mobile Broadband (Vita Net), which have not undergone any changes, and also the monthly fees for postpaid Mobile Broadband tariffs and Vodafone Casa Internet and TV services, which have undergone adjustments lower than those resulting from the application of the new VAT rate.

At Sonaecom, which owns Optimus with operations in the fixed and mobile network, the line of action is similar. The company guarantees that it will apply the VAT rate decided on in the State Budget, also recalling that, in the last modification «Optimus did not increase the prices available to Customers, in order to maintain the competitiveness of its offer».

Going back to 2005 and 2008, other moments of change in the tax rate, Optimus also recalls that «it supported the increase in VAT to 21%, maintaining the prices paid by Customers, and in 2008 it reflected the decrease in VAT to 20 %, reducing the value of all voice and data services «.

Also contacted, AR Telecom declined to comment on its intentions while the State Budget was still under discussion and CabovisĂŁo ended up not answering the questions sent by TeK.

Equipment increase in price?

The weight of this sector in the consumers’ pockets will be even greater, since in equipment – from mobile phones and computers to consumer electronics – the trend will also be for prices to rise to reflect the 23% VAT rate.

TeK contacted cell phone and computer sales leaders, but some declined to respond because they claimed that they did not sell directly to the end consumer, notably Nokia, while others forwarded their comments later, such as LG and HP.

Although it also does not sell products directly to the end consumer, suggesting recommended PVPs, Toshiba says that «analyzing the latest increases and decreases in the VAT rate, we can conclude that the market usually works and each partner will set prices according to its commercial strategy».

In the last VAT increase, in July, a part of retailers and resellers chose to absorb the value of the increase and keep the offer they had, while others increased the final price of the products, reflecting the increase in VAT, recalls the same source. A premise that is valid for the consumer segment and the professional market.

Asus is clearer in its intention to absorb the VAT increase whenever possible. André Gonçalves, public relations officer for Asus in Portugal, admitted to TeK that “it is our intention to absorb this increase in products whenever the respective price and costing structure allows it, so as not to penalize the consumer”.

This official, however, recalls that the market is characterized by very aggressive competition with particular sensitivity to price, which results in a constant crushing of profit margins. «The absorption of the expected increase of 2% in the VAT rate in the current market scenario becomes unaffordable for manufacturers».

An aid in this intention may result from the recovery of the Euro against the Dollar, verified recently, since all the raw material is acquired in Dollars, which may allow the PVPs to maintain themselves. In the case of the last increase in VAT, these accounts ended up being exchanged, as the dollar was strengthening against the euro, with a global increase in market prices, which led the company to decide to reflect the increase in 1% tax on prices.

The scenario designed for 2011 is not very positive. Toshiba also believes that the current economic and financial crisis will have an impact on economic growth and consequently also on demand in the markets in which it operates, expecting a slowdown in the growth rate that has been registered.

«2011 is going to be a very prudent investment market for the corporate market, in consumption I believe that the purchase decisions will be much more weighted, leading to a reduction in impulse purchases», concludes André Gonçalves, admitting that the generalized price rise will originate a retraction in demand as an effect of increasing the effort rate in relation to the consumer’s disposable income.

Editor’s Note: The news was altered in Asus quotes at the company’s request.