As part of the pilot project, from July 1, 2026, to June 30, 2027, it is planned that certain groups of food products will be subject to a reduced value added tax (hereinafter referred to as VAT) rate of 12%.

 

The reduced VAT rate will be applied to:

  • all types of bread, including rye, wheat, mixed flour, and other cereal breads, as well as gluten-free bread;
  • fresh, sterilized, or pasteurized milk, excluding ultra-sterilized (UHT) milk;
  • fresh chilled poultry meat (chicken, turkey, duck, goose, guinea fowl, quail);
  • fresh poultry eggs in shells.

The goal of the pilot project is to alleviate the burden of food prices on consumer purchasing power and enhance food accessibility in Latvia, especially given the significant price increases in the food sector observed in recent years.

 

Current Situation

Currently, most food products in Latvia are subject to a standard VAT rate of 21%. The reduced 12% VAT rate is currently applied to baby food and fresh fruits, berries, and vegetables typical of Latvia. In recent years, food prices in Latvia have significantly increased. The main reasons for this are price hikes in global markets, rising energy costs, increased transportation expenses, geopolitical instability, and secondary inflation.

High food prices particularly affect socially vulnerable groups. They also limit the ability of local producers to maintain competitiveness, as consumers often opt for cheaper imported goods. This restricts opportunities for development and the provision of stable income.

 

Expected Impact

During the pilot project, it is planned to assess how the reduction of the VAT rate affects food price dynamics in retail, consumer purchasing power, and the competitiveness of food producers and retailers.

The reduced VAT rate is intended to protecting consumer interests, ensuring that essential food products become more accessible and affordable to a broader segment of society.

At the same time, there is a public opinion that the effectiveness of the measure is questionable, as previous experiences with VAT reductions for certain food groups do not always ensure significant price reductions for consumers. There is a risk that retailers may retain part of the reduction benefit for themselves.

Although the goal is to reduce the burden of food prices and improve consumer purchasing power, the pilot project will have a significant impact on the state budget – preliminary calculations indicate a revenue reduction of approximately 32 million euros.

 

Budget Priority – Security and Defense

Given the current geopolitical situation, the government's main priority in the coming years is strengthening national security and defense capabilities, which requires increasingly larger financial resources. In this context, the introduction of reduced VAT rates on food raises discussions about whether now is the right time to reduce budget revenues without clear evidence of the direct impact of this measure on food price reduction.

The bill will be advanced as a budget-accompanying bill and is planned to be adopted simultaneously with the law "On the State Budget for 2026 and the Budget Framework for 2026, 2027, and 2028."

The results of the pilot project will be evaluated in 2027 to decide on the possible continuation or expansion of the application of the reduced VAT rate.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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