Foodstuff, Latvia, Legislation, Markets and Companies, Taxation

The bill, submitted by the Greens/Farmers group and several nonpartisan MPs, proposed reducing VAT on food from January 1 next year.

The amendments aimed at reducing the shadow economy and creating a level playing field for local food producers, prompting the demand for food products, and easing the tax burden on the most vulnerable social groups.

According to the European Union directive on the common system of VAT, each EU member country may have two reduced VAT rates no lower than 5%. The authors of the amendments explain that most EU member countries apply reduced VAT to food products, mostly bread, cereals, milk, dairy products, vegetables, fruit, meat.

The bill states that differentiating VAT reduces social inequality. Furthermore, the reduced VAT rate will mean more support for Latvian dairy, egg, bread and meat producers. The negative impact the reduced VAT rate will have on budget revenue will be compensated by a slight increase in consumption and other positive fiscal consequences, as well as a substantial reduction of the shadow economy.