How will Duty Free be defined post Brexit? The same way that caused the Boarding Pass fiasco for Travel Retail?

How will Duty Free be defined post Brexit? The same way that caused the Boarding Pass fiasco for Travel Retail?

By: Pas Encore   •   email: info@trunblocked.com

Track back a few years and airport retailers in the UK got themselves embroiled in a huge scandal related to the need for travellers to present their boarding passes in airport stores whenever they bought.

In short, a smart journalist worked out that the requirement by (most) airport retailers at UK airports for a traveller to show his or her boarding pass had just enabled the retailer to reclaim and then keep the VAT on certain purchases.

Airport VAT scam: Five things you need to know about the boarding pass rip-off

Airport VAT scam: Five things you need to know about the boarding pass rip-off

The scandal went viral and around the world, prompting travellers to ask why they were apparently being ripped off by airport stores. In effect the retailers were (allegedly) recovering the Sales Tax, but not passing it on to the customer. It was a global PR disaster for Travel Retail.

This is a complex subject. Much depends on each location and each product and price – all related to the fiscal conditions by country.

Forgetting for a moment these regulatory idiosyncrasies by territory, ‘Duty Free’, ‘Tax Free’ and ‘Travel Retail’ have largely morphed into becoming one and the same in the global marketing world of shopping on your travels.

These descriptions were meant to denote bargains for consumers, because they were travelling and outside their various tax regimes. It is this very concept that formed the bedrock and stimulated sales at airports.

The problem is that ‘Duty Free Shopping’ has, more often than not, transformed into a mixed bag of ‘Luxury Shopping’, where the price advantage is minimal – unless you come from a developing country that imposes huge import taxes on luxuries. Brazil, China or India could all well fit this mould.

But let’s be clear about the market. The industry understands this (albeit in denial), but the consumer simply does not know if he is coming or going when it comes to the rules. All they want is the brand they like at the best discount price. Over time, the industry waters have been seriously muddied – especially in Europe.

All well and good. Let the retailers manage the message to their best advantage, whilst running the risk that another smart journalist might just cut through the hype and find a cavernous loophole to generate great consumer advice and traffic.

Soon, along comes Britain’s Brexit and the mounting industry discussion about ‘Bringing back Duty Free’ between the UK and their former friends. That is, all those EU territories that cannot sell Tax or Duty free to everyone travelling between the Bloc. Nor to or from the UK and other EU member states.

A nice idea – unless you are a smoker or a drinker. Why? Because nobody has thought how the Duty Free Allowances will drop from the current intra-EU ‘Recommended Allowance’ for Tax Paid purchases, returning to the international ‘Duty Free Allowances’ (or have they?).

So, if you are a smoker standing in Malaga airport today, you can buy and bring back 800 cigarettes to Britain without getting any hassle from Customs. You could also – technically – bring 10 litres of whisky, although it would be hard to carry so much onto the flight. Your price for these intra-EU goods is not much different to that you would pay if you were flying outside the EU and getting ‘real’ Duty Free prices.

Result? ‘Bringing back Duty Free’ actually reduces my limit down to 200 cigarettes and 1 litre of whisky. A serious reduction in volume for the travel retailer and a loss in margin, too. I can only only smoke and drink for a week, instead of a month. No really a consumer friendly
innovation, then.

But the real bombshell is the 'Tax Free' element of this 'Return to Duty Free'

But the real bombshell is the ‘Tax Free’ element of this ‘Return to Duty Free’.

Why? Because everything else sold by airports, like Perfume & Cosmetics (which accounts for 50% + of the overall market in Europe at the moment), isn’t ‘Duty Free’ at all and never has been. There is no Excise Duty on Perfume, only local tax known as VAT, IVA, TVA etc.

Hence, bring on another Boarding Pass scandal, only this time bigger and better than before. Journalists, sharpen your pencils, because this one will send your clicks through the roof.

What follows is just a guide editorial of what may follow:-

”Britain brings back Duty Free shopping after Brexit. Except that most prices won’t drop and you won’t gain!”

”Now that Brexit has happened, travellers can once again take advantage of a return to Duty Free Shopping. This is because Britain is no longer part of the EU.

But is this a real turnaround for travellers and what are the gains?

Well, not much, because only your cigarettes and liquor will become Duty Free again. All the other products available only incur VAT and these were already sold to you at a discounted price, regardless of where you were travelling to.

Meantime, airport retailers will now be able to recover the Value Added Tax on the goods you buy when en route to Spain or Portugal. But will they pass on the savings? If they do, this means that Duty Free prices will be lower for travel to Europe than to the USA. If they don’t,
it means they are pocketing the tax saving from the return to Duty Free and not giving you any benefit.

If you are a smoker or a drinker, you probably didn’t get lucky at all, because you might now get a price reduction with real Duty Free prices when travelling to or from Italy, Greece or Germany, but your Customs allowances have just dropped by 400% or more. In effect, you can save a little on the price, but cannot pass through Customs with the previous quantities (only 200 cigarettes and a litre of spirits).

trubi-brexit-trunblocked-another-ripp-off

Industry insiders will understand the nuance of this draft article and it should be food for thought as to how the post Brexit dash for cash is a recipe for another potential Travel Retail PR disaster – especially for the bulk of the market, Perfumes & Cosmetics.

And this is before 250 million EU citizens become eligible for a Tax Refund when shopping downtown in London, because Britain becomes a non-EU territory.

So, that post-abolition muddying of the Duty Free waters, with levelled prices for all, is about to bounce back and bite hard on Travel Retail. It will become more advantageous for shoppers to go to the high street, recover the VAT, and then return to their destinations at a discount – because the airport retailers are in a real pricing muddle and are no longer cheaper than anyone.

And, once the media has worked out where the best bargains are to be found, they will certainly advise they are not at the airport. And this is before the likes of Global Blue or El Corte Ingles get fully into the act.

I guess the one consolation is that I might soon be able to get on a ferry from Belfast to Dublin to drink and smoke myself stupid on the cheap.

As if…. The Irish government want free borders after Brexit, but health warnings on my liquor. Not to worry, Amazon will work it all out and sell to us all offshore – probably domiciled in Ireland!

When the day comes, actually before the day comes, there is going to be a need for some very serious message management. So who is going to do it exactly now and how? Please bear in mind that most Duty Free retailers ‘escaped’ the Boarding Pass muddle on a technicality. This time around they will need to explain why it is not ‘Value Deducted Tax’ on those fragrances, cosmetics or watches passengers might be buying at those ‘Tax Free equivalent prices’.

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