Lower VAT on food discussed in Lithuania as a way of bringing down prices

Producers say that if VAT on food were reduced, final prices would depend on retailers. The latter want political guarantees.

Prime Minister Saulius Skvernelis says that it usually retailers and service providers, rather than consumers, that benefit from a VAT cut.

The heads of associations of meat and milk processing companies say that if the VAT rate on food products were cut to 9 percent, from the current 21 percent, prices for these products should go down by 12 percent. They underline, however, that final prices would depend on retailers because VAT “emerges on the shelf”.

Skvernelis says that the VAT rate on food would only be lowered if the government were convinced that this would bring maximum benefit to consumers, stressing that the number-one priority is to increase people’s incomes.

Laurynas Vilimas, head of the Association of Lithuanian Trade Companies, says that retailers want political agreement on a VAT cut before taking on any commitments.

“If there is political consensus, then businesses will certainly meet their part of commitments. If a memorandum, a written statement or any other kind of public statement is needed, we’ll find that form,” he said during a discussion on rising prices hosted by the parliament on Tuesday.

The conservative Homeland Union–Lithuanian Christian Democrats proposes to cut the VAT rate for all food products, except alcoholic beverages, to 9 percent starting next year.

Žygimantas Pavilionis, one of the authors of the draft amendment, says that prices should fall by up to 9-10 percent as a result of the proposed cut.

The opposition conservatives have drafted a memorandum under which the government and businesses would pledge, among other things, “not to use inflation-related factors as a pretext for raising food prices more than they would rise due to inflation”.

All food products in Lithuania are currently subject to the standard VAT rate of 21 percent.