Latvia’s government considers temporarily reducing VAT for electricity

The ruling coalition in Latvia has put on the discussion table the topic of temporarily reducing VAT for electricity.
The Ministry of Economics has proposed to the coalition a temporary reduction of VAT for electricity from 21% to 5%.
Although there is no clear support for this proposal, unofficial information suggests the coalition is not strictly against this initiative the decision may be made in a week.
The coalition has agreed the Ministry of Economics and Ministry of Finance will prepare more detailed proposals to support energy consumers.
Reduction of VAT would help reduce electricity bills for all users by 13%,
without causing any negative effect on the budget when compared to the planned VAT amount from previous electricity price outlooks, according to the Ministry of Economics.
Latvia’s Prime Minister Krišjānis Kariņš told journalists after a meeting of the ruling coalition that the government has been following the energy resource price rise for several months. He said reduction of VAT for electricity could be part of the expanded support provision mechanisms. At the same time the Ministry of Economics and Ministry of Finances will consider other options. «We are trying to adapt our government’s policy, which is dynamic and fluctuating,» said the PM.
Minister of Economics Jānis Vitenbergs says there are already multiple support mechanisms in place that are directly tied to the energy resource price increase. This includes EUR 20 support paid to vaccinated seniors, additional support for protected groups, as well as plans to reduce the mandatory procurement component (MPC) in 2022.
The minister explained that of the solutions proposed by the ministry the reduction of VAT received the most support.
The politician said it is planned to provide support support to energy intensive enterprises. This topic is planned to be discussed on Thursday, 9 December, in the National Economy Council. Entrepreneurs will be invited to provide their opinions.
In regards to the planned VAT reduction, Vitenbergs said that due to increasing electricity prices such a solution would be fiscally neutral.
Attīstībai/Par! political party politician, Minister of Environment Protection and Regional Development Minister Artūrs Toms Plešs said it is necessary to create a quick and effective solution in a situation when electricity prices increase, which will likely leave a significant impact on households and businesses in the near future. The coalition will discuss the solution that would help residents get through winter in a week, said the minister.
The minister said it is necessary to exact systemic changes and invest more money into alternative energy (solar energy, wind energy, etc.) in a long-term perspective, as well as heating houses in the private and public sector.
Commenting on this, New Conservative Party politician Krišjānis Feldmans said European wind turbines could not produce enough energy to satisfy demand. It is necessary to discuss with industry partners how to best provide the industry with electricity and predictable prices. However, he said wind energy will not be the decisive factor in this, said the politician.
Feldmans stressed that electricity price increase is not considered normal. He did say the coalition has heard the opinions of the minority, which suggested taking action to reduce the burden for consumers. He said Ministry of Economics and Ministry of Welfare should work together on this topic. The politician allowed the Economic, Agricultural, Environmental and Regional Policy Committee could discuss this topic next week.