On March 12, 2024, the Ministry of Finance published a decision on the 0% VAT rate on basic food products. As Deloitte experts emphasize, these changes will be felt not only by ordinary consumers, but also by taxpayers.
- The periodic reduction of the VAT rate to 0% on food, which was previously subject to a rate of 5%, is effective from February 1, 2022. Therefore, it applies to basic food products listed in item 1-18 of Annex No. 10 to the VAT Act, such as fruit, vegetables, cereal products, dairy products and meat.
- The Ministry of Finance announced that there will be no further extension, which means that the temporarily introduced solution (reduced zero VAT rate on some food products) will cease to apply on March 31, 2024.
- According to Deloitte experts, changes in VAT rates will probably not please consumers (they will be felt in the prices of food products). At the same time, they pose challenges for taxpayers who trade in these products.
The Ministry of Finance has decided not to extend the temporary reduction in the VAT rate on basic food products after March 31, 2024. It is based on the continuing downward trend in inflation and favorable forecasts of food price dynamics.
0% VAT rate on basic food products
The periodic reduction of the VAT rate to 0% on food, which was previously subject to a rate of 5%, is effective from February 1, 2022. Therefore, it applies to basic food products listed in item 1-18 of Annex No. 10 to the VAT Act, such as fruit, vegetables, cereal products, dairy products and meat.
The zero VAT rate for this group of products was introduced with the inflation reading for January 2022 at 9.2%. on an annual basis. The regulation on this matter was supposed to be in force until the end of 2023, but it was ultimately extended for another three months.
The Ministry of Finance announced that there will be no further extension, which means that the temporarily introduced solution (reduced zero VAT rate on some food products) will cease to apply on March 31, 2024.
The Ministry said in a statement published today that, based on preliminary data from the Central Statistical Office, inflation in January this year decreased to 3.9 percent. and this is the lowest annual growth rate of consumer prices since March 2021. A clear decline was also recorded in relation to the annual growth rate of food and non-alcoholic beverage prices. It is the lowest since September 2021 and amounts to 4.9%.
Another argument given by the Ministry supporting the decision not to extend zero VAT are estimates of inflation and its dynamics in the coming months. According to them, in February and March both inflation (y/y) and the annual growth rate of food prices will continue to decline.
Changes to VAT on food pose financial challenges for consumers and fiscal challenges for taxpayers
According to Deloitte experts, changes in VAT rates will probably not please consumers (they will be felt in the prices of food products). At the same time, they pose challenges for taxpayers who trade in these products.
They have until the end of March to make appropriate changes to systems and procedures (e.g. changes regarding the presentation of prices in stores) to ensure the application of appropriate VAT rates from April 1, 2024 – emphasize Deloitte experts – Moreover, a return to 5% VAT on the above-mentioned goods may pose a particular challenge for sellers using cash registers. From a technical point of view, the cash register provides, among others: blocking the sale of a given product when the value of the tax rate has been increased or previously reduced (so-called tax staggering).
As Deloitte experts point out, this means that when the VAT rate returns to 5%, the sale of selected goods may be blocked, as long as it includes goods with the same name for which the rate was changed.
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