Government to debate special VAT rate for fruit and veg

The Latvian Agriculture Ministry still stands by its proposal to lower the value-added tax (VAT) rate on locally-grown fruit, berries and vegetables from 21 percent to 5 percent, the ministry said August 21, commenting on the negative reaction to the plan from the Finance Ministry and the Economics Ministry.

The Agriculture Ministry said it would not withdraw its proposal and the subject would be discussed at the Cabinet of Ministers meeting August 22.

Edite Strazdina, the chairwoman of agricultural cooperative Musmaju Darzeni and a member of the working group created by the Agriculture Ministry to work on the proposal, said that the arguments against lowering of VAT on locally-grown fruit and vegetables were unsubstantiated and unconvincing.

Moreover, the estimates of the fiscal effects on the Latvian budget from lowering of VAT as produced by the the Finance Ministry and the Economics Ministry were different from estimates made by the University of Latvia and the Agriculture Ministry, she said.

According to Strazdina, the share of the shadow economy in the vegetable segment is growing with every year as many vegetable vendors evade VAT by selling their products in street markets. Lowering VAT to 5 percent is the only way to improve competitiveness of legal vegetable vendors, she said, adding that it seemed that certain government officials and politicians simply did not care about the fate of the Latvian vegetable producers.

The working group created by the Agriculture Ministry in early March this year came forth with a proposal for lowering the VAT rate on fresh fruit, berries and vegetables grown in Latvia from the standard 21 percent to 5 percent.

But the Finance Ministry and the Economics Ministry produced reports in which they disapproved of the Agriculture Ministry's proposal, saying that lowering VAT on food was not the most effective way to address the problems of social inequality, to fight the shadow economy and to increase the competitiveness of legal businesses. In addition, the move would create a negative fiscal effect on the Latvian budget, the two ministries said.

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