TALLINN – A motion by the opposition Estonian Center Party to propose to the government to lower the value added tax (VAT) on food to 5 percent from the current universal rate of 20 percent was dropped from the agenda of the Estonian parliament on Tuesday.
Thirty-one MPs voted in favor of the draft. A majority of the chamber, meaning at least 51 votes in favor, would have been needed for the motion to pass.
Center Party MP Andrei Korobeinik, presenting the draft, said that in addition to groceries, the bill would extend the 5 percent VAT rate also to agriculturally grown foods, as well as restaurants and the food services provided by hotels.
"We believe that Estonian retailers will also lower prices as soon as the VAT rate drops," he said.
Reform Party MP Annely Akkermann, the chair of the finance committee, said, summing up the discussion that had taken place in the committee, that the opinion prevailed that the VAT rate should be uniform and that, as a rule, VAT reductions either do not reach the final price at all or do so only partially.
After the vote, Korobeinik said in a press release that the poorer segments of the population, who spend a significant proportion of their income on food, suffer the most from increases in food prices.
"This leads to growing inequality in Estonian society. Estonia is one of the four European Union member states that do not apply a reduced VAT rate to food products. A reduction in VAT means that, for example, instead of 500 euros, people would have to pay 420 euros for food," the MP said.
He added that most European countries have a lower VAT rate for food products and Estonia should follow suite as soon as possible.
"In Finland, the VAT on food is 14 percent, in Sweden 12 percent, in Latvia 5 percent, and in Spain and Italy it is 4 percent. Food is an unavoidable expense for families and it must not become a luxury item," Korobeinik said. "MPs from the Reform Party, the Social Democratic Party and Estonia 200 did not vote, and showed by doing so that they do not care about making food more affordable."
The Center Party MP added that residents of Estonia prefer food grown and processed in Estonia, but are also very price-sensitive. In the face of price pressure from imported goods, a large part of the Estonian food industry is working on the brink of going out of business. Most of the foreign food producers selling their products here meanwhile operate on preferential terms offered by their home country.