Price jump after increasing VAT on food? Expert: The trade war between chains may slow this down

Luc Williams

The Ministry of Finance announced on Tuesday that the zero VAT rate on some food products will not be extended after March 31, 2024. The reason for this is the continuing downward trend in inflation and the decline in the growth rate of food prices.

Prof. Adam Mickiewicz University in Poznań, Ph.D. Iwetta Andruszkiewicz from the Department of Social and Economic Policy, Faculty of Political Science and Journalism, University of Adam Mickiewicz in Poznań asked by PAP whether abolishing the zero rate and restoring 5 percent. VAT on basic products will result noticeable price jumpemphasized that this is only theoretically possible.

Competition between retail chains

Strong competition between retail chains, especially in the case of basic food products, in my opinion it may slow down this process somewhat. However, due to the specificity of VAT, its flows for the sales network will be neutral. Restoration of 5 percent VAT rates mean an increase in state budget revenues by several billion zlotys,” she noted.

The expert emphasized that the reduced VAT rate on food in Germany is 7% and in France 5.5%. and in the Czech Republic from 15 to 10 percent.

When asked whether the introduction of a zero rate during the greatest increases in inflation in Poland had a positive effect, she denied it. “In my opinion, it was of no major importance. Inflation slowed down, but in my opinion it was not strongly related to the reduction of the VAT rate on food products, it was only one of the elements,” she said.

Budget needs

When asked whether if inflation returns to increase, politicians will be willing to return to the zero VAT rate on food in the near future, she pointed to the reduction in revenues to the state budget. “The needs of the budget are huge, we have to obtain financial resources. In the EU, we have one of the lowest rates for food products. These are real budget revenues that, in my opinion, we should not give up,” she noted.

Reduced VAT rate on food

Reduced VAT rate on basic food products, effective from February 1, 2022, was introduced with the inflation reading for January 2022 at 9.2%. on an annual basis. According to preliminary data from the Central Statistical Office, inflation in January this year decreased to 3.9 percent.

Currently, the rate is 0%. covered by food products listed in item 1-18 of Annex No. 10 to the VAT Act, i.e. covered by a rate of 5% before February 1, 2022, and then, as part of the anti-inflation shield – from February 1, 2022 to December 31, 2023, by a rate of 0%. The zero VAT rate applies to basic food products: fruit, vegetables, meat, dairy products and cereal products.

The regulation extending the application of reduced VAT rates for certain goods and services until March 31, 2024, including maintaining the zero VAT rate on basic food products, was signed in December last year. the then Minister of Finance, Andrzej Kolorowniak. It was estimated then that the cost to the budget was approximately PLN 2.7 billion. (PAP)

author: Szymon Kiepel


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