Lower VAT rates on agricultural products remain implemented in Latvia for the upcoming year.
In a recent development, the Latvian parliament, the Saeima, has rejected an opposition proposal to lower the Value Added Tax (VAT) rate for fresh fruits, berries, and vegetables. The current VAT rate for these items remains at a reduced rate of 5%, which applies specifically to a fixed list of typical fresh produce.
The Saeima's decision not to lower the VAT rate further does not provide any clarity on whether the reduced VAT rate applies to all locally grown fruits, berries, and vegetables or only some. The draft law that was under consideration does suggest a lower VAT rate for locally grown produce, but it does not specify the details.
It's worth noting that the reduced 5% rate on fresh fruits and vegetables helps make these healthy foods more affordable for consumers and can support local farmers by making their products more competitive. Maintaining this lower rate specifically for fresh produce may protect consumers against inflationary pressures on food costs.
However, if Latvia were to increase this VAT rate (which is not currently proposed), it would likely raise food prices, which could disproportionately affect low-income households who spend a larger share of income on food. Conversely, keeping a reduced rate supports public health goals by encouraging fruit and vegetable consumption, which is important considering the economic pressure on households.
In contrast, Estonia, which applies a broad 24% VAT rate to food, is currently debating reducing it to around 13%. This debate is partly motivated by comparisons with Latvia’s selective reduced rates. Latvia already uses a targeted reduced rate system for fresh produce, unlike Estonia.
The draft law in Latvia does not mention any timeline for its implementation or any potential changes to the VAT rate in the future. It also does not specify whether the reduced VAT rate applies to all imported fruits, berries, and vegetables or only locally grown produce.
The items covered under the reduced VAT rate include washed, peeled, shelled, cut, and packaged fruits, berries, and vegetables. Items not covered under the reduced VAT rate include cooked or otherwise processed fruits, berries, and vegetables (such as frozen, salted, or dried).
In summary, the current VAT rate for fresh fruits, berries, and vegetables in Latvia remains at 5%, applied only to a fixed list of typical fresh produce. There is no clear proposal to change this rate in Latvia at this time. The targeted reduced VAT rate helps maintain affordability and potentially benefits population health. This targeted reduced VAT regime in Latvia is an example of how selective VAT rates are used to balance tax revenues with social and economic policy objectives.
The Latvian parliament, the Saeima, has yet to definitively clarify whether the reduced VAT rate of 5% on fresh fruits, berries, and vegetables applies to all locally grown produce or just a select few. Should Latvia decide to increase the VAT rate, it could potentially impact low-income households disproportionately due to their higher spending on food-and-drink.
In comparison, Estonia is contemplating reducing its broad VAT rate on food from 24% to around 13%, which could mirror Latvia's targeted reduced VAT rate on fresh produce, serving various finance, lifestyle, and business purposes.
