Consumers putting spending on hold amid tax hikes

ISTANBUL

Many consumers are putting spending on hold this summer amid hikes in the value-added tax (VAT), buying only essential goods, daily Milliyet has reported.

Normally consumer spending increases in summer months as people buy new appliances and furniture. Weddings also give a boost to sales.

However, this year it is different. Consumers already cut back on spending due to elevated inflation and rising costs triggered by the depreciation of the local currency.

Consumer spending appeared to have lost further momentum after the VAT, which applies to a wide range of products, including furniture and small home appliances, was hiked from 18 percent to 20 percent. The tax hike took effect on July 10.

Small businesses complain that large companies hike their prices more than what the tax hike necessitates.

“Tax hikes affect all quarters of the society, but small businesses feel the pinch most. Large players in the market increased their prices by 20 percent whereas the tax hike is only 2 percentage points. Small businesses cannot do that,” said Bendevi Palandöken, the president of the Confederation of Turkish Tradesmen and Craftsmen (TESK).

Large companies’ main competitors are other large companies not small businesses, they dominate the markets, said Palandöken.

The tax hikes were necessary to meet the government’s need for additional financing in the wake of the February earthquakes, recalled Ahmet Güleç, the president of the Federation of Furniture Associations (MOSFED). “We expect those revenue-boosting measures to be temporary. The furniture market was already stagnant, but the sector now faces new challenges after the tax hikes,” he said.

Consumers, who had planned to buy furniture, home appliances, are putting spending on hold. “They prioritize essential goods, such as food and clothing.”

Güleç proposed that the number of installments on credit cards for purchases to be made for furniture could be increased from 18 to 24 months, which may give a boost to sales.