Reduced VAT rate on local fruit, vegetables has negative impact on budget - Finance Ministry

  • 2020-09-15
  • LETA/TBT Staff

RIGA - Reduced value added tax (VAT) rate on local fruit and vegetables will leave a negative impact on the state budget, the Finance Ministry reported.

National Alliance leader Raivis Dzintars said in the context of next year's budget that one of the unresolved issues is reduced VAT rate on fruit and vegetables. He said that so far the reduced VAT rate has ensured positive results. The Agricultural Ministry is ready to present an informative report in this respect. For example, shadow economy in the sector has reduced by 20 percent, the number of VAT payers has increased by 9 percent, prices have dropped by 11.7 percent.

At the same time, the Finance Ministry said that in 2018 and 2019 Latvia's economy has risen, and event faster than predicted earlier. The gross domestic product (GDP) increased by 8.4 percent in 2018, while wages rose 10.2 percent from 2017.

"Increase of turnover, consumption, increase of wages and paid labor taxes, thus, cannot be interpreted as solely result of reduced VAT rate," the ministry said, adding that reduced VAT rate on fruit and vegetables has left a 5 percent negative fiscal impact on the collected VAT.

According to ministry's estimates, reduced VAT rate on fresh fruit, berries and vegetables in 2017 reduced collected VAT by EUR 1.61 million, in 2018 - by EUR 4.79 million, and in 2019 - by EUR 5.38 million.

The reduced VAT rate on fruit, berries and vegetables had been introduced for a certain period of time - by the end of this year. In order to make the decision on further steps, the Agricultural Ministry's report should be analyzed.