VAT increase: how much would smartphones cost?

by Kelvin
VAT increase: how much would smartphones cost?

VAT increase: how much would smartphones cost? 2

If a crisis of government is already a serious matter for the country that lives it, it is even more so if it comes at such a delicate time or rather when it is necessary to find sufficient funds to avoid theincrease in VAT rates. While our politicians are committed to deciding the future of our country, time passes and the safeguard clauses do not allow exceptions: if there are not enough resources to prevent them from taking off, one of the very first consequences will be the increase in VAT rates in 2020 and in 2021.

We remind you that VAT is the "Value added tax”Which weighs exclusively on final consumers. The commercial activities (retail and wholesale), through VAT and debit mechanisms, actually pay the tax that they have collected from the final consumers during their transactions. Therefore, the purchasers of goods and services make the direct expenses of these possible increases. Clearly, among the first indirect consequences – which would then also affect the other subjects – there would be one reduction in consumption, with a consequent contraction of the economy in general. However, without going into the details of these dynamics, we try to understand in practical terms what could happen to smartphone prices if this condition occurs.


More expensive smartphones with VAT increase

The VAT rate that affects the purchase of smartphones is that highest, which is currently 22%. According to the Budget Law 2020, if the safeguard clauses were to be triggered, the VAT rate would increase by more than 3 percentage points: it would in fact pass to the 25.2%. In a nutshell, more than a quarter of the price of a good or service purchased would consist only of the "Value Added Tax".

In practical terms, to understand how much it could increase the cost of a smartphone it is possible to proceed with a quick calculation taking five as a reference generic prices: € 200, € 300, € 500, € 800, € 1000. Consider these as the finished price (including VAT) of a smartphone. To understand what their cost is without the tax in question, or the tax base at which it will then be possible to add the new hypothetical VAT at 25.2%, it is sufficient to execute the unbundling of VAT. The mathematical formula for obtaining a price without VAT is very simple (the brackets – given the nature of the operations – could be avoided, we leave them to help you better understand the steps):

price without VAT = ("VAT included price" X 100) / 122

Example: for convenience, we show you how to separate the price (including VAT) of a smartphone that costs € 200, in all other cases we will offer you the results directly.

price without VAT = (200X100) / 122 = € 163.93

This would be the cost of the device without the "weight" of the "Value Added Tax". Here are all the calculations:

  • € 200 = € 163.93 + VAT;
  • € 300 = € 245.90 + VAT;
  • € 500 = € 409.84 + VAT;
  • € 800 = € 655.74 + VAT;
  • € 1000 = € 819.67 + VAT.

Now that we have separated the tax from the finished prices it is possible add VAT again to the tax base obtained, considering however the hypothetical 25.2% rate that could be applied in 2020. The formula is extremely simple also in this case:

price including VAT = ("price without VAT" X 125.2) / 100

Example: we give you again a practical example for the price of "200 €", only to pass directly to the results.

price including VAT = (163.93X125.2) / 100 = € 205.24

Below are all the price changes, of the bands taken into consideration, after the hypothetical increase in the tax:

  • from € 200 to € 205.24;
  • from 300 € to 307.87;
  • from € 500 to € 513.12;
  • from € 800 to € 821;
  • from € 1000 to € 1026,23.

So, probably when we are making an investment of hundreds of euros, the increase of three percentage points in VAT could don't compromise our choices, but we invite you to reflect on this: the "Value Added Tax" (although with different rates) we pay for almost all of our purchases in Italy, from those of first necessity to the most futile. So, the highest smartphone price is just one of the biggest outlays that would weigh – from 2020 – on our wallet.