Analytics, Latvia, Legislation, Markets and Companies, Taxation

Unfortunately, the intended price reduction succeeded only partially, said the prime minister.

Dombrovskis explained that retailers fulfilled their promises to reduce prices at least partially, since separate retailers and producers used the VAT reduction to amortize an increase in costs, writes LETA.

The Finance Ministry previously pointed out the VAT reduction could affect inflation by a maximum of slightly less than 0.7%. The actual impact, however, is estimated at around 0.3-0.4%.

As reported, the Finance Ministry proposed reducing the VAT rate 1% at the end of April, insisting that the reduction should be reflected in prices for goods and products at stores. The government and Latvian Food Retailers Association later signed a cooperation memorandum aimed at increasing consumers' purchasing capacity. The association, which includes such members as Iki, Rimi Latvia and Maxima, resolved to ensure that members of the association take the new, reduced VAT rate into account when setting prices for goods and products at their stores. The government also signed similar memorandums with Latvian Fuel Traders Association and Fuel Retailers and Producers Union.

The VAT rate was reduced from 22% to 21% on July 1.