Switzerland is expensive. The prices of certain items, such as some meats and dairy products are kept especially high by a combination of trade tariffs and import restrictions. A lack of retail competition further adds to prices generally.
For some, shopping across the border is the preferred way to avoid high Swiss prices. Around CHF 10 billion is spent annually on cross-border shopping, according to one estimate.
The current tax free limit of CHF 300 per person makes most cross border shopping trips hassle free. However, soon, cross-border shoppers could find themselves throwing their toys out of their shopping carts.
This week, a proposal to cut the tax free allowance to from CHF 300 to CHF 50 found a majority in the Council of States, Switzerland’s upper house, reported 20 Minutes. The proposal has already been cleared by parliament.
Key arguments presented in favour of the change include the unfair VAT advantage enjoyed by foreign retailers and a loss of Swiss retail business. An estimated CHF 500 to CHF 600 million francs of VAT is forfeited by setting the allowance at CHF 300.
A key argument against the plan is the impossibility of checking the hundreds of thousands of people who cross the border every day. According to SRF, Ueli Maurer, who is in charge of Swiss customs, said that if you open every trunk, you’ll have a ten kilometre traffic jam. There is no point demanding something that cannot be implemented or controlled, he said.
Despite this argument, the proposal was voted through by the Council of States.
A possible adjustment to the plan would allow an exemption for those travelling outside the country for more than 24 hours. Ruedi Noser put forward a motion to leave the CHF 300 limit in place for those returning from longer trips abroad. However, this motion has not yet been decided on.
Reducing the tax free allowance could reduce retail competition further. A study by SECO, calculated that 44% of the retail price premium paid in Switzerland related to a lack of competition. Another study refutes the argument that high Swiss salaries are behind Switzerland’s high retail prices. In reality, lower payroll taxes and higher staff productivity mean staff costs are on average 5% lower in Switzerland.
Retail competition is especially important in Switzerland because of its rising currency and high dependency on imports. These two phenomena together allow retailers in a market with sluggish competition to hold onto automatically rising margins – explained further here.
FRC, a consumer association estimates the compartmentalisation of the Swiss retail market and lack of competition within it cost Swiss consumers around CHF 25 to 30 billion annually compared to the EU. If correct that’s around CHF 3,500 per person.
Adding cost and hassle to cross-border shopping is unlikely to win favour with many shoppers in Switzerland’s border areas. And cross-border shoppers are likely to command more votes than the local retail workers and owners who might benefit.