Coalition considering 12% VAT rate on fruit and veg

The ruling coalition is considering applying a reduced value added tax (VAT) rate of 12% on fruits, vegetables and berries characteristic of Latvia, according to Minister for Agriculture Armends Krauze (Greens and Farmers Union, ZZS) on LTV discussion "What's happening in Latvia?".

The coalition may introduce the revied rate from January 1, 2024, if it can be included in budget plans.

In 2018 a reduced VAT rate of 5%, instead of the standard 21%, was introduced for fresh vegetables, berries and fruits for the duration of a three-year pilot project. In 2020, the Ministry of Agriculture concluded that the criteria had been met with success. On the other hand the Ministry of Finance considered that the pilot project was not a success. However, the government agreed to maintain the reduced VAT until autumn 2023.

Now a decision needs to be taken on what the rate should be in future.

Former Minister of Agriculture Didzis Šmits (United List) said in the discussion that he is not a "fan" of the 5% VAT rate on fresh produce which some are advocating – he believes that in order to prevent the rebirth of the shadow economy in the agriculture sector, the VAT rate should be slightly higher.

His successor, Armands Krauze said: "We have discussed [it]. We need to find a solution on how to compensate for this budget framework, where revenues are decreasing, but we believe that it has a positive effect – the shadow economy will be smaller, which will benefit our producers. Cash flow is improved significantly with this reduced VAT rate."


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