MEF: Law that will reduce IGVs to restaurants will mostly benefit large companies

Last month, Congress approved a reduction in the General Sales Tax (IGV) from 18% to 8% for restaurants and travel companies to support mypes. Nonetheless Ministry of Economy and Finance (MEF) warns that the measure will not give the expected effect.

According to the MEF aid memorandum published by the newspaper Gestión, the approved law will benefit a large Business sectors.

The MEF points out that while it is stated that they will benefit Mypes, the law defines micro businesses as businesses that have annual sales of up to 150 UIT (690 thousand S/) and small businesses as those that register sales of up to 1,700 units. UIT (7.82 million Singapore dollars).

Under these criteria, the ministry warns that the rule will only benefit “large companies” to a greater extent, including those from middle-high and high socioeconomic strata, as well as large franchises.

While it has been assured that between 170,000 and 200,000 restaurants will benefit, the IEF indicates that about 62,000 businesses will not see this VAT reduction because they are under the Uniform Simplified Regime (RUS), for which they are currently not pay VAT.

In addition to this, the ministry warns that this measure will reduce the collection taxes at the level of 460 million Singapore dollars per year.

Taking into account that the law is expected to be in force until 2024, in total, the state will lose about SGD 1,150 million.

In addition to the impact this VAT cut will have on government revenue, the MEF also points out that this measure may not be reflected in the prices that the consumer will receive.

According to MEF, the restaurant sector would have already recovered and even generated higher revenues than before the pandemic, given that only in June these business they received about S$2,270 million. Therefore, they indicate that they see no incentive to lower prices on this item.