On Thursday, the 7th of December, the Saeima passed in the final reading amendments to the Value Added Tax Law, setting the VAT rate for fresh fruits, berries and vegetables at 12% for one year.
The existing 5% VAT rate for fruits and vegetables will remain in force until the 31st of December. Initially it was planned to include in the legislative draft a VAT rate of 21%. However, following a proposal from coalition politicians, the Saeima decided to set the VAT rate at 12%.
The EUR 15.9 million needed to implement this tax change will be found through a review of excise duties, as well as by cancelling the planned EUR 3 million subsidy for fruit and vegetable farmers.
At a previous government meeting ministers discussed the necessity of finding a long-term solution for this matter. Prime Minister Evika Siliņa noted that because support of a single sector affects other sector, all steps should be balanced. Minister of Economy Viktors Valainis said that there have to be long-term solutions, but only after extensive discussions.
The government previously ordered the Ministry of Agriculture to prepare an assessment of the effect a 12% VAT rate would have on prices of fresh fruits, berries and vegetables for end users.
A comparison of actual prices in Baltic States shows that VAT is not the decisive factor in the creation of prices, representatives of the Ministry of Finance say. It is worth mentioning that there was no significant industry growth observed after the adoption of a reduced 5% VAT rate. The net tax amount paid in this sector in Latvia is close to zero – in 2018 the net amount reached EUR 5.9 million and in 2022 it was EUR 0.3 million because of growing VAT returns.
Currently, wages for agricultural workers do not reach the industry average, and the gap is growing. It can also be observed that imports of fruits and vegetables in Latvia dominate (over 75%) domestic consumption, emphasizes FM. If this continues, import volumes may reach 80% in 2024. There are three largest importers that dominate the Latvian market – their market share exceeds 56%.
The ministry believes the sector should move towards a standard VAT rate of 21%. The Ministry of Agriculture should develop focused tools to ensure the sector’s development in order to provide support to local fruit and vegetable farmers, as well as promote consumption of healthy food in the country.
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Latvian government decides to set VAT for fruits, berries and vegetables at 12% for one year
