VAT and AVS: how businesses are coping with the prospect of a rise

The referendum on 29 November on a VAT increase to fund the 13th AVS pension presents businesses with a very practical question: who will bear the cost of the tax rise and how should it be factored into prices, contracts and invoicing systems? In Valais, according to Le Nouvelliste, the Socialist Party, the Greens and the trade unions support a 0.4-point increase. Their political argument is clear: in their view, this solution would be preferable to the risk of a rise in the retirement age should the proposal be rejected.

For an SME, the debate is not limited to a choice of social policy. A change in VAT always involves operational adjustments: configuring software, checking the rates applied, updating quotations, communicating with customers, monitoring current contracts and keeping a close eye on cash flow. Even a change presented as minor can lead to costly errors if it is addressed too late.

A 0.4-point increase that would affect the final invoice

VAT is a consumption tax. In practice, the business charges VAT on invoices to its customers, collects it, and then pays it to the tax authorities after deducting the input tax to which it is entitled. It therefore acts as a tax collector, but this intermediary role is not neutral: it requires accurate accounting, complete supporting documents and consistent periodic returns.

The proposal put forward by the Valais left, according to the article in Le Nouvelliste, is to increase VAT by 0.4 percentage points to fund the 13th AVS pension. For businesses, the key issue is not only the additional rate, but also when it should be applied and how to handle transactions straddling a potential change: quotations drawn up before the change comes into force, invoices issued afterwards, deposits already paid, ongoing services, subscriptions, recurring payments or work delivered in stages.

In the retail sector, the hospitality industry, personal services or activities where prices are displayed inclusive of all taxes, a VAT increase can result in a margin trade-off. Either the business passes on the increase in its final price, with a commercial risk if the customer is price-sensitive. Alternatively, it may maintain the advertised price and absorb the difference, thereby reducing its margin. In business-to-business transactions, the economic impact may differ where the customer can reclaim input tax, but the accuracy of the invoice remains crucial.

The debate in Valais points to a national funding choice

Le Nouvelliste reports that the Socialist Party, the Greens and the Valais trade unions are advocating the VAT increase as a solution that is ‘not perfect’, but preferable to raising the retirement age. This wording illustrates a classic trade-off in social funding: should consumption be taxed more heavily, should other sources of revenue be strengthened, should benefits be adjusted, or should action be taken regarding the length of working life?

For an employer, the prospect of raising the retirement age does not have the same effects as a VAT increase. A change in the reference age can alter HR planning, end-of-career management, replacement policies, the transfer of skills and the organisation of physically demanding roles. A VAT increase, on the other hand, tends to affect prices, demand, profit margins and administrative procedures. Both options therefore have business implications, but they do not impact day-to-day management in the same way.

The key point for an SME manager is not to view this referendum solely through an ideological lens. VAT is a very tangible tax: it appears on receipts, invoices, contracts and statements. It runs through the entire commercial chain. A self-employed person invoicing for services, an industrial SME selling to Swiss customers, a retailer operating with publicly listed prices, or an accountancy firm managing the accounts for several clients will all need to incorporate any potential increase into their processes.

Invoicing, contracts, software: the real work begins before the vote

A prudent business does not need to wait for the final result to identify areas of concern. The first of these relates to invoicing software, till systems and management systems. VAT rates are often embedded within items, product categories, invoice templates or accounting interfaces. A poorly configured change can result in a series of incorrect invoices. In an SME, this type of error is rarely dramatic at first, but it becomes time-consuming when it comes to correcting it, issuing credit notes, reissuing documents and explaining the situation to customers.

The second sensitive area concerns pricing. Businesses that operate with published price lists will need to decide whether their prices will be adjusted automatically or whether the increase will be absorbed. This decision must be made with a realistic view of the profit margin. A seemingly small difference can have a significant impact when applied to a large volume or to products that are already marginally profitable. For the self-employed, the challenge is similar: an hourly or flat-rate fee may become less profitable if the additional VAT is not factored into the business strategy.

The third area concerns contracts. Long-term contracts, subscriptions, fiduciary mandates, maintenance contracts, service leases or ongoing services should be reviewed with regard to their tax clauses. Some agreements specify that prices are exclusive of VAT; others state a price inclusive of all taxes; others still are not sufficiently clear. In the event of a rate change, this ambiguity can lead to commercial disputes, or even conflict. A proactive review helps to avoid having to negotiate under time pressure.

Cash flow and margins: VAT is not just an accounting entry

VAT is often presented as neutral for a taxable business, since it collects it on behalf of the state. This neutrality must be qualified. It depends on the right to deduct, the type of customers, the time taken to receive payment, payment terms and administrative discipline. A business that charges VAT but receives payment from its customers late may have to manage a cash flow gap. An increase in the rate automatically increases the volume of funds passing through its accounts, even though these funds do not belong to it.

Businesses with a retail customer base are particularly vulnerable to the price effect. The end customer generally looks at the total amount payable. When VAT rises, the business must therefore choose between maintaining its ‘psychological price’ or preserving its margin. This decision cannot be made on a product-by-product basis without analysis: some items or services can cope better with a price adjustment, whilst others are highly competitive.

For accountancy firms, the vote is also a matter of internal organisation. If the increase is accepted, several clients will need to be supported simultaneously: updating VAT schemes, checking invoices, communicating implementation dates, assisting businesses that use tools with limited automation, and verifying statements after the transition. The clients most at risk will often be those who invoice infrequently, combine several types of services or still handle part of their administration manually.

Preparing without prejudging the outcome

The right approach is to prepare scenarios rather than take a political decision for granted. An SME can already draw up an inventory of its prices including VAT, its open contracts, its outstanding quotations and the tools that will need to be modified should the proposal be accepted. It can also identify customers or sectors where passing on a price increase would be commercially sensitive. This work does not commit the business politically; it simply ensures it is not caught off guard by the transition should the proposal be accepted.

A few best practices are useful: clearly distinguish between pre-tax and all-inclusive prices in quotations; ensure contractual wording allows for a statutory change in VAT; document pricing decisions; and plan to review the first invoices issued following any such change. For companies that outsource their accounting, an early discussion with the accountancy firm allows tasks to be allocated: who updates the software, who validates the rates, who checks the invoices and who answers clients’ questions?

Finally, the ongoing debate in Valais regarding the funding of the 13th AVS pension serves as a reminder that social policy decisions often have very practical implications for businesses. A 0.4-point increase in VAT, advocated by the Valais left according to *Le Nouvelliste*, will be decided at the ballot box. But for SMEs, its potential effects will subsequently be felt in profit margins, prices, cash flow and the quality of accounting administration.