Economist: Initial Negative Effect of Reduced VAT Could Be Compensated Within a Year

From July 1, 2026, until June 30, 2027, Latvia is applying a reduced value-added tax (VAT) rate of 12% to four basic food product groups: bread, milk, poultry meat, and eggs. The Saeima approved the corresponding amendments to the VAT law in December 2025.

Kārlis Purgailis, chief economist at Citadele bank, states that this reduced rate will directly result in approximately €30 million in uncollected revenue for the state budget, which is less than 1% of total VAT revenues. However, he believes that consumers will likely spend the money saved on other goods and services, thereby increasing overall consumption. The VAT paid on this additional consumption will compensate for the budget shortfall. "Predictably, within a year the initial negative effect of the reduced VAT rate will be fully compensated," Purgailis emphasizes.

The Consumer Rights Protection Centre (PTAC) notes that a 12% VAT rate is already applied in Latvia to several food categories, such as infant food, fresh fruits, berries, and vegetables. Now it will also apply to all types of bread, including those with seeds, nuts, or grains; cow, goat, or sheep milk, including lactose-free; fresh or chilled chicken, turkey, duck, and goose meat, including offal and minced meat; and unprocessed poultry eggs.