Basic foods VAT cut from 7% to zero extended by three months till end of the year
The Portuguese government has extended the temporary cut in VAT on basic foods for a further three months until 31st December 2023. This covers a list of 46 basic foods, including milk, bread, rice, tomatoes, and some meat and fish.
The temporary VAT cut was due to expire on 31 October 2023.
Inflation in Portugal had been falling steadily. After peaking at 10.1% in October 2022 – the highest in more than three decades – it dropped to 3.7% in August.
6 April: Inflation on food accelerates to 21.5% prompts VAT rate cut 18 April (latest) to 31 October 2023
Whilst Portuguese inflation is drifting downwards – 8.2% in February compared to 10.1% peak in October 2022, food inflation is now at its highest since 1985.
This has prompted the Prime Minister, Antonio Costa, to promise a review of a reduced VAT rate cut to help alleviate the effects of this stubborn inflation. The government also said it is working with food suppliers and retails to contain prices. Following discussions in early April in Parliament, this has been set for 18 April 2023.
The existing standard rate is 23%, with a mix use of the two reduced rates, 13% and 6%, for foodstuffs.
In recent days, Netherlands food VAT cut proposal has been raised.
Many other EU states cutting VAT on food and fuel.
IMF – Governments would be better to use revenues for more targeted welfare support
The International Monetary Fund last year called for governments to avoid temporary Value Added Tax rate cuts on fuels, electricity or foods as an attempt to reduce the impact of fast-rising inflation. European VAT cuts and in the rest of the world have been rife in as inflation hits forty-year highs.
In its report, the IMF highlights that VAT and similar ad valorem taxes brings in extra revenues given the price elasticity of energy and food spend. Rather than offering tax subsidies to all through VAT cuts, they should instead use the additional taxes to provide targeted welfare support to those less well off.
