Reduced VAT rate for fresh fruits, berries, and vegetables will be maintained in Latvia

On October 8, the Latvian government decided to maintain the reduced 12% value added tax (VAT) rate on fresh fruits, berries, and vegetables typical to Latvia beyond December 31, 2024.

Minister of Agriculture Armands Krauze emphasized, “The reduced rate benefits both local producers and residents, who should ideally consume more of these products. This approach encourages healthier eating habits while supporting industry entrepreneurs. Given that the reduced VAT rate on fresh fruits, berries, and vegetables typical to Latvia is offset by a permanent excise tax on sugary soft drinks, this rate will continue to apply to this product group.”

In the European Union, reduced VAT rates are introduced to make certain goods more affordable and accessible to end consumers. Increasing the VAT rate on fresh fruits, berries, and vegetables would undoubtedly raise the final price, making these healthy, desirable products less accessible to a significant portion of the Latvian population.

Today, the Ministry of Agriculture (ZM) presented an informative report to the Cabinet of Ministers titled, “The Impact of the 12% Reduced VAT Rate on Fresh Fruits, Berries, and Vegetable Prices.” The report detailed the impact of the 12% VAT rate on the end-consumer price of fresh fruits, berries, and vegetables and examined price differences across the Baltic states.

From January 1, 2024, Latvia implemented a 12% VAT rate on fresh fruits, berries, and vegetables, replacing the previous reduced rate of 5%. To evaluate the impact of this VAT change on the end-consumer price of fresh fruits, berries, and vegetables, the Latvian University of Life Sciences and Technologies conducted a study on the monthly prices of fresh fruits, berries, and vegetables in the online stores of two major food retail networks in Latvia, Lithuania, and Estonia.

The Latvian University of Life Sciences and Technologies found that in January and February 2024, the average retail price for fresh fruits, berries, and vegetables in Latvian food stores increased by 6.5% without discounts and by 7.9% with discounts compared to prices in November and December 2023. This increase roughly aligned with the VAT rate change. In some cases, however, price hikes were significantly higher than the VAT increase due to rising procurement costs.

Comparing prices across Baltic retail networks reveals that the average retail price index for fresh fruits, berries, and vegetables in Latvia is lower than in Lithuania and Estonia:

  • In Lithuania, the average price level for fresh fruits, berries, and vegetables without discounts was 9% higher, and with discounts, it was 10% higher than in Latvia, corresponding to the VAT rate difference between Latvia and Lithuania (+8%).
  • In Estonia, the average price level for fresh fruits, berries, and vegetables without discounts was only 2% higher, and with discounts, 5% higher than in Latvia, which does not fully reflect the VAT rate difference between Latvia and Estonia (+9%).

Since pricing policies for fresh fruits, berries, and vegetables vary significantly among the Baltic states, there are relatively large price differences across the fresh fruit, berry, and vegetable products analyzed. These differences cannot be solely attributed to VAT rates, as pricing is influenced by multiple factors, including procurement costs affected by seasonality, labor, and other expenses, as well as consumer behavior, purchasing power, and competition among food retail chains.

Information source: Ministry of Agriculture