Estonian retailers are calling for a VAT cut on basic food products, but the coalition parties disagree. In six months’ time, the VAT rate in Estonia will rise from 22% to 24%, on Wednesday, the 12th of February, reports the Estonian media ERR.
VAT reductions are already standard in most other European countries and in the UK, but Estonia has no VAT rate cut for food.
Retailers want to cut VAT on vegetables, meat and dairy products to 13%.
This would reduce additional revenue for the state by around 40 million euros but would also support Estonian producers and improve the spending power of families who are struggling the most.
“Finland raised VAT to 25.5% this year but still applied a 14% rate to food. The reason is that, despite the tax increase affecting consumers, food should be affordable for every family,” said Rainer Rohtler, CEO of supermarket chain Coop.
However, Finance Minister Jürgen Ligi said tax cuts would mainly help rich consumers and retailers, reduce food prices a little and cost the country hundreds of millions it does not have. He called the proposal cynical, saying that retailers’ profits had increased.
Rohler disagreed, saying that Estonia’s retail margins are low – around 2%.
Although food prices in Estonia have risen significantly faster than the EU average, Bank of Estonia economist Kaspar Oja pointed out that these differences cannot be explained by tax changes alone. A lower tax rate does not necessarily mean lower prices.
Piret Hartman, Minister for Regional Affairs and Agriculture, said that a reduction in VAT on food should be discussed as companies have confirmed that this would lead to lower prices. “It is impossible that prices would not fall,” she said, but stressed that more analysis was needed.
She argued that the state budget would not suffer much as people would spend the savings elsewhere.