Latvian government mulls reducing VAT rate for electricity

To compensate for the rapid rise in electricity prices this winter season, one of the support mechanisms proposed December 6 by the Ministry of Economy (EM) is the reduction of the value-added tax (VAT) rate for electricity.

The coalition has not yet agreed on specific support mechanisms but it is planned to decide next week.

The proposal aims to reduce the VAT rate for electricity consumers from the current 21% to 5%, Economics Minister Jānis Vitenbergs (National Alliance) said at the press conference following the meeting of the coalition Monday.

Reducing the VAT rate would shrink the final bill for all electricity users by 13% on average, Vitenbergs explained.

“This could even be a fiscally neutral offer, because the price of electricity also increases the amount of taxes collected,” Vitenbergs said, adding that the proposal had earned “great coalition support.” However, the Ministry of Finance and Welfare plan to make specific proposals next week. 

Prime Minister Krišjānis Kariņš (New Unity) said at the press conference that ministries will consider various solutions so that support for the economy can be extended as much as possible during this winter season.

As reported, this week, electricity prices in Latvia skyrocketed hitting new records.

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