Portugal Extends VAT Exemption for ‘Critical’ Food Items

“Prices Have Dropped Nearly 10% Since April as Portugal Extends Zero VAT on ‘Essential’ Food Products

Portugal has decided that “Portugal Extends VAT Exemption for ‘Critical’ Food Items” from zero VAT policy on a selection of vital food items until the end of this year, incurring a cost of €140 million ($149.8 million) for the government. Initially introduced in April for a six-month period, this tax exemption applies to 46 common food products, ranging from fruits, vegetables, meats, fish, dairy, to bread. Minister of the Presidency Mariana Vieira da Silva disclosed this decision on September 7, following the Council of Ministers’ approval of the VAT extension.

The government announced that during the initial phase of the zero VAT policy, prices for consumers witnessed a nearly 10% decrease between April 17 and August 28. In a subsequent press conference, Mariana Vieira da Silva labeled the VAT measure as a “success,” citing its role in achieving a substantial and proportionate reduction in the prices of essential, healthy food items. Portugal’s Economic and Food Safety Authority (ASAE) conducted the assessment that supported this claim.

Vieira da Silva also highlighted a significant decline in Portugal’s food inflation rate, which dropped to 7.3% in August from 8.6% before the zero VAT policy was introduced in April, although it remains higher than their medium-term objective. This observation led to the decision to extend the tax relief until the end of the year.

“The zero VAT initiative was forged through a trilateral accord involving the government, as well as the food production and distribution sectors. Its core objective was to alleviate the repercussions of inflation on family incomes,” the government statement explained. “The selection of the 46 products on the list took into consideration the Ministry of Health’s healthy food basket and data from distribution companies regarding the most commonly consumed products by the Portuguese population.”

Notably, France has also implemented measures to address high food costs by reaching an agreement with producers to freeze or reduce prices on various goods, including food items. Similarly, Hungary introduced a price cap program last year, which concluded in August and was subsequently replaced by an alternative scheme in June. This new scheme raised the mandatory discounts levy to 15% from 10%, covering a basket of 20 food items.

Extension of Specific VAT Rates Portugal’s 2022 budget has received approval in Parliament. Among the measures, which include transposing certain VAT Directives for EU purposes and amending VAT compliance-related deadlines, the reduced rate of 6% (5% in Madeira and 4% in the Azores) has been extended for certain dairy-free products, repair services for domestic appliances, and the delivery and installation of specific solar panels. This extension is set to expire on June 30, 2025.”

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