The great airport sales tax scam. How airport retailers pocket easy money.

Let's start with the governing question of this post: When the cost price goes down, should the retailer pass on the saving to the consumer? What if the cost were due to the applicable taxes, rather than the cost of supply or manufacture?

Last Easter I found myself at Amsterdam Airport looking for a new tablet computer on my way out to the USA. Perhaps it was one of the Samsung Galaxy Tabs that caught my eye, and when I took it to the counter, I noticed the price had not changed, despite the original price tag stating a price inclusive of Value Added Tax. (hereafter abbreviated VAT).

For background, I should mention one thing that's great about living in The Netherlands is that Dutch people are blunt/direct/efficient, and sort of expect the same from you too. There's little mincing of words or bullshit hanging in the air after a conversation. So my conversation at the sales desk progressed something like this:

Agent: “Boarding pass please.”

*scans boarding pass*

Tim: (confused) “Um…where is my discount?”

Agent: “What discount?”

Tim: “It should be 21% cheaper as there's no VAT”

Agent: “It's one price for all. We keep the tax savings”.

Tim: “So what's the point of me buying from here instead of at my destination?”

Agent: “It will be cheaper for you in the USA even after declaring VAT when you get back. The price with VAT here is a bit cheaper than normal shops in Amsterdam, but we subsidise it with the ex-VAT transactions.”

I thanked the agent for the honesty she had presented, and I gracefully put the tablet back on the shelf and continued the journey empty handed. I had not thought about it since as I hardly ever buy stuff airside, and have not done so since. My inclination is that I was lucky to get that sales rep though, because if I were a store manager I would probably ask them to do what it takes to deliver that sale.

Yesterday The Independent ran an article about how some of the most well-known airside retailers in the UK apply similar strategies to my experience at AMS. In particular it calls out Dixons Travel, World Duty Free and Boots who they identify as worst offenders. They offered this comparison table of high street and airport prices.

VAT table high street vs airport

I see moral parallels between this and fuel surcharges, or even fuel you get at the petrol stations. The key differences between airports, fuel surcharges and forecourts is whether the customer can vote with their feet. That is, if the customer doesn't like the price or policy, are they free to move to a different location and buy there.

When you are airside you are, in effect, a prisoner and have little choice. You either buy from the small selection at the imposed prices or you do not buy at all. Your position is further exacerbated by the 100ml fluids restriction we have seen since 2006. On the other hand if you were choosing a place to fill up your car then you could probably choose from 10 places within a mile's radius.

One commenter, identifying himself as a former employee, summarises the insider scenario eloquently:

I used to work at Boots at a UK airport, albeit fairly briefly. This was fairly common knowledge among staff. As in, I remember a colleague asking a manager once why we were required to ask for boarding passes and she was honest and explained it was so we could pay less tax on transactions where customers were flying outside the EU. Though she also said we weren't to tell customers that.

She said it was because rent at airports was so incredibly expensive. And to be honest, I imagine it is, especially at the bigger airports in the London area. She said we'd be forced to put prices up otherwise, because of that. So it is certainly a tax dodge. Call me a cynic, but I sincerely doubt it's anything like the worst these companies get away with.

Also, I can't speak for other branches, but where I worked we always accepted it if customers didn't want to show their boarding passes. The customer's always right after all. And when you're working at 4am you really don't give a monkeys. The amount of abuse we got was crazy though. People really do need to learn the difference between being asked for something and told they need to provide it in order to be served. Whatever you think of actions of these companies regarding tax, please don't take it out on staff. Certainly not low-level staff anyway. They'll be being paid minimum wage to work unsociable hours. And shouting at them won't make a blind bit of difference to anything.

Another reader in the article writes:

I've tried buying from WHSmith and Boots at airports and (knowing this isn't security/legal requirement) refused to show boarding card but they simply say “it's the law” and refuse to budge, let alone call a manager.

It's a VAT dodge clean and simple. I will be escalating my refusal to show my boarding card from now on.

“People really do need to learn the difference” in the first quote should equally apply to the staff members and their behaviour to customers, as we see two contradicting experiences (though we do not know what happened after the second one spoke to the manager, if he/she did at all). In the modern era of public aviation, it is sometimes confusing as to what is a legal requirement or not – for instance do you really need to take off your shoes before going through security? Or is it illegal to take photos at security checkpoints?

My position in all of this? I don't see any legal wrongdoings with retailers exercising their oligopoly (though I wished they didn't) as they would have had to make huge financial decisions to acquire the space in the terminal, but I do find it crass if they are deliberately confusing the public or refusing transactions on the basis of not presenting a boarding pass, as it is clear is not a legal requirement.

What are your views or experiences in airport duty free?  What could consumers or retailers do differently? Please share your comments below!

 

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  1. “Duty Free” here in Vancouver doesn’t even both to worry about long explanations. Champage st DF is $1.00 cheaper than in our government liquor stores…. and we have obscenely high taxes!

  2. Interesting article, I never understood why duty free prices in UK seemed to be about the same as anywhere else in the country.

    On a related note, I don’t get duty free in American airports. I can understand duty free in most of the world but in America where we don’t have VAT and sales tax range from 0% (NH, DE OR, AL and MT) to at most 10%, you are pretty much always better off buying what you want on the street.

  3. Am I the only one that sees no deception here? The stores surveyed and discussed are not proclaiming they are selling products Duty or Tax Free. They are retailers from the high street selling their products at high street prices. For certain items sold in branded Duty or Tax Free stores (alcohol and tobacco), the purchase prices reflects the removal of those additional government “sin” taxes levied on such goods, if not any further import or VAT. There seems to be an expectation that everything one purchases at an airport (within the non-domestic area, or for international flights) will be free of duty or tax. This is not the case, nor ever was. In fact, the examples and stores presented in the newspaper story don’t pretend to be Duty Free shops, they are just regular retail shops. And yes, the airports may be complicit because their rents are astronomical.

    • If the retailers are not claiming to be selling VAT/Duty free, the shop called “World Duty Free” should probably be renamed! However they present themselves, the annoyance of the general population still stems from ‘being used’ more than the money saved!

  4. Incidentally, what happens if I reclaim the VAT on such a purchase myself? It should be mine to reclaim (for my business if purchased as such) but how will HMRC know?

    • You need to have paid the VAT first before you can claim it back. So if you fly intra-EU and you pay for something that’s £6 inc. VAT, you have paid £5 + £1VAT. The crux is if you are flying non-EU, the price is artificially raised to become £6 ex-VAT. That way there is no VAT to claim.

  5. Hi Tim, I came to your site from your OMAAT comment – and it’s refreshing to see some common sense on this (full disclosure; I used to also work duty free some years back and unlike the commenter, we were told the reason and also were welcomed to tell customers if needed, so I’m shocked this has become such a heated issue all of a sudden). As you say regarding rent, even where airport co’s forgo rent, they instead take a whopping % of concession/DF profit.

    (Regarding the not giving the boarding card – yes, our POS just wouldn’t login without it being scanned, or without us typing in all our login details plus the flight number, additional flight numbers if connecting, which at 4am…exactly…is the last thing you want!)

    Secondly, the cost of complying with local customs/revenue, regulations on connecting flights (you’d be surprised how expensive complying with the sealed bags for example was, plus comp’ing pax if staff got it wrong and it was confiscated), etc. make it much less attractive.

    Thirdly and most importantly in all this debate, I was genuinely dismayed at the shocking comments towards creating extra work or insulting front-line staff, who let’s be honest, are retail staff without any real added benefits, and more ridiculous hours and crazy customers a lot of the time than they would get on the high street.

    I don’t doubt Boots/Dixons aren’t doing incredibly well out of this, but I’m so surprised that this has become such a sudden issue, that people genuinely never wondered about this before and frankly, that the retail co’s themselves aren’t being a bit more proactive addressing this more honestly, because as you mentioned, there are probably far worse tax dodges taking place than this.

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