The head of the Estonian Chamber of Commerce and Industry, Toomas Luman, has called on the government to reduce the value-added tax (VAT) on food in order to assess whether prices for end consumers remain lower, ERR News reports.
Luman said he would allow the government to point out that 100,000 residents have signed a petition calling for a VAT reduction for food. He added that he was personally not entirely sure that the VAT reduction would translate into lower prices for end consumers, but there was only one way to find out. “In my view, the government could decide to lower the VAT on food from the nominal rate by, say, 5 percentage points for a year or two,” Luman said.
The head of the Chamber of Commerce and Industry said that
in this way it would be possible to obtain statistics and see whether food prices are falling at about the same level as the tax
or not.
Luman noted that Estonians save very little, and any funds left over after abandoning the personal income tax increase would go into circulation. He praised the idea of abandoning the personal income tax increase, and said that Estonia, figuratively speaking, has taxed itself to the point of poverty.
True, as Luman noted, the government has done very little to restructure or limit spending, and there is great potential to find funds there. The specialist emphasized that it is pointless to raise wages if prices are rising faster: “At the end of the day, businesses have to pass price increases on to end consumers. But whether consumers can absorb those price hikes is another question.” If consumers cannot afford higher prices, entrepreneurs cannot afford to raise them. This leads to a loss of profit, and at some point companies start laying off workers.
Read also: Initiative to reduce VAT on food gains broad support in Estonia