From The Daily Mail:
Top British retailers were last night accused of making millions from tax discounts on duty-free sales at airports – without lowering prices for travellers.
They examine boarding passes to see if passengers are traveling outside the European Economic Area, which allows them to avoid paying 20 per cent VAT on goods.
But few retailers pass the savings on to customers, with the result that products sold at airports are often the same price as on the high street, it was reported.
Of course. Entirely predictable.
A tax is borne by whoever is less price sensitive (supplier or consumer) and a subsidy accrues to whichever factor of production is most fixed in supply. All these people who say "the consumer pays the VAT" have just fallen for the propaganda.
So the retailer bears the VAT and the retailer benefits from the VAT reduction as above. The actual gross selling price is fairly fixed. Which is also what they noticed when they reduced the VAT rate on hospitality in some EU member states a few years ago. Actual food and drink prices didn't go down much, but output and employment increased significantly.
But the airport owner can charge correspondingly higher rents to soak up that extra profit. So the government claws back some of those higher rents in Business Rates.
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