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News Article

Panic Purchases Lead to Higher VAT Revenue

By Jan Hogewoning | Mon, 05/04/2020 - 15:48

Government revenues from Value Added Tax (VAT) in 1Q20 were 18.3 percent higher than the same period in 2019. The total value of generated VAT was US$12.2 billion. In March alone, VAT revenue was 24.4 percent higher than in March 2019. Experts attribute the increase in VAT to panic purchases as customers felt uncertainty related to the COVID-19 contingency. The National Association of Self-Service and Department Stores has also recorded growth in store sales in this period. On average, sales at stores with more than a year of existence grew 1.1 percent in March. This figure, however, also includes retailers that sell items other than foods and health and safety goods, which might have driven the average growth down. According to one study, self-service stores, primarily supermarkets, saw sales rise in March with 45 percent.

The primary goods that saw a spike in consumption were not just foods. However, as individuals started preparing for quarantine, food consumption patterns shifted worldwide. In the US, sales of powdered milk rose by 84.4 percent in the week of February 29. Other products that saw jumps in demand were grains, canned meat, canned tuna, chickpeas and peas and beans. These are foods with a longer shelf life, fitting the perception that consumers were going to be isolated at home with limited opportunities to stock. In China, one study reported that spending on food items grew by as much as 40 percent during the crisis.

A spike in demand for particular food goods also led to price increases in Mexico. Rice, sugar and beans saw an average increase of 2.55 percent, 2.15 percent and 2.02 in March, compared to February. Other products that saw significant price increases were legumes and cereals and to a lesser degree lime, serrano pepper, avocado, potato, eggs and chicken. The increase in price for particular food items was more pronounced in particular areas of the country. Baja California and Jalisco were the most affected, with the price of foods, beverages and tobacco increasing by 1.15 percent in Baja California and by 0.59 percent in Jalisco between February and March.

Because the basis to growing VAT revenue is panic purchases, experts have warned that this growth is atypical and therefore cannot be expected to continue. As the contingency carries on, panic purchases have reduced. However, the increased tax revenue is a welcome addition to the government coffers, while it is working on a plan to provide credit to struggling businesses.

The data used in this article was sourced from:  
El Economista, Expansion, Nielsen, StoreCheck
Photo by:   Pixabay
Jan Hogewoning Jan Hogewoning Journalist and Industry Analyst