This week, the newspaper Tages-Anzeiger reported that Switzerland’s federal government is working on reducing the tax free allowance granted to people returning home from a shopping trip abroad. The amount is currently CHF 300 per person per day. The government is looking at cutting this allowance to CHF 150 per person per day, according to the newspaper.
The value of any goods exceeding the allowance is subject to Swiss VAT, currently 7.7%. Within the current CHF 300 allowance are quantity limits on alcohol and tobacco that qualify for tax free treatment.
According to a study by the University of St. Gallen cross-border shopping diverted CHF 8.5 billion away from Swiss retailers last year, down from CHF 9.1 billion in 2017. Roughly 40% of the total is spent on groceries.
Reducing the tax free limit is an old idea. Retailers in border cantons regularly push for it. One study estimates cutting the tax free allowance to CHF 50 per person per day would cut cross-border shopping by one third, reported SRF.
Those in favour of reducing the allowance argue that it forces all Swiss residents to pay VAT. Why should regular cross-border shoppers get to live VAT free? Although it is not always possible to only pay Swiss VAT. Cross-border shopping in Germany typically involves shoppers reclaiming German VAT. By contrast, cross-border shoppers shopping in France often cannot reclaim French VAT. This makes paying Swiss VAT a form of double taxation.
One consumer protection association argues the idea is treating the symptoms rather than the real problem of high Swiss retail prices. Imported products miraculously become more expensive when they cross the border as retailers boost their margins.
However, the problem is not necessarily down to greedy Swiss retailers. Foreign brand owners sometimes jack up the wholesale prices they charge Swiss retailers.
In addition, many of the intuitive justifications for higher Swiss retail prices fall apart under scrutiny.
Another argument against lower allowances is that they will increase work for customs staff and may even encourage more frequent trips.
SRF article (in German)