Reduced VAT boosts sales of milk and other basic food items

In the first days after the introduction of the reduced value-added tax (VAT) rate on certain food products, retailers have observed an increase in sales volumes, according to the Latvian Food Retailers Association (LPTA). The highest consumer interest was for milk, with shoppers also asking why the reduced rate does not apply to other dairy products such as cottage cheese and cream.

The implementation of the reduced VAT rate has overall proceeded smoothly without significant technical or organizational complications. Retailers carried out the necessary preparatory work in advance, and the tax reduction is reflected in the final prices of the respective products. The Consumer Rights Protection Centre (PTAC) has also been active in monitoring prices in stores.

LPTA believes that after the initial implementation period, not only price changes but also consumer demand data and the clarity of the product scope should be evaluated. If the data confirm a positive impact on affordability and consumption, extending the reduced VAT rate to a wider range of staple products should be considered. Moreover, the initiative should be continued in the long term, rather than just for one year as currently planned.

LPTA was founded in 2010 and brings together food retailers "Rimi Latvia", "Reitan Convenience Latvia" (which manages the brands "Narvesen" and "Caffeine"), "top!", "Aibe", "Elvi" and "SPAR Latvija". LPTA members together represent more than 45% of the Latvian food retail market.

As previously reported, from July 1, a reduced VAT rate of 12% applies to four basic food product groups – bread, milk, poultry and eggs – instead of the previous 21%. The reduced rate will be in effect for one year, until June 30, 2027.