VAT reduction on local produce likely to be abolished next year

In the next year's budget, it is no longer planned to maintain the reduced value-added tax rate for fruits and vegetables produced Latvia, but farmers might be provided with state aid for investments and competitiveness, Agriculture Minister Armands Krauze (Union of Greens and Farmers, ZZS) told Latvian Radio September 28.

The reduced VAT rate of 5% instead of 21% for fresh vegetables, berries, and fruit was introduced for the duration of a pilot project in 2018. The reduced VAT rate was planned for three years and at the same time four indicators were set to be achieved.

In 2020, the Ministry of Agriculture concluded that the criteria had been met with flying colors. The number of taxable persons subject to VAT was set to increase by 10% during that period and increased by 9%. The increase in turnover of goods and services in the crop and vegetable sector had to reach 6%, but it has increased by 9% in 3 years. However, the amount not obtained in the budget was planned to be EUR 6 million annually, but the result was better than that.

The Finance Ministry, on the other hand, took the view that the pilot project had not been successful and that the calculations in the report had been misinterpreted. However, the government agreed to maintain reduced VAT until autumn 2023.

Krauze acknowledged that this reduced VAT rate is no longer planned in the negotiations on next year's budget.

The minister said fruit and vegetable prices did not fall due to the reduction in the VAT rate, but this helped local producers and it also helped in the battle with the shadow economy in the segment.

However, in the summer of this year, the previous government of Krišjānis Kariņš did not take the decision to extend the application of the reduced VAT rate again, and a full 21% rate is planned in next year's budget, Krauze noted.

However, in the negotiations on next year's budget, it has been agreed to allocate an additional EUR 3 million to help fruit and vegetable producers – they will be intended for investments to increase competitiveness and export capacity, the minister said.

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