Despite Halved VAT Rate, Food Prices Higher than Before

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The Central Bureau of Statistics has released data on food prices showing the real effects of the reduced VAT rate on food. According to CBS data, only meat and fruit were cheaper in January. Fruit prices fell by 2.3 per cent, and meat prices by 1.7 per cent. All the other food groups were more expensive in January than the month earlier, reports Prvi Plan on February 24, 2019.

Significant discounts, announced and advertised by retailers, and expected by the government, did not happen. On the contrary, food and non-alcoholic beverages prices in January were 0.4 per cent higher than in December 2018.

The largest retail chains announced that the prices of products (fresh meat, fish, fruits and vegetables, eggs and diapers) to which the lower VAT rate began to apply starting from 1 January 2019, were lowered as early as in December 2018.

According to some experts, the effects of halving the VAT rate (from 25% to 13%), can only be expected in two to three months, mainly since prices of some types of products depend on seasonality in supply. However, the initial data on price movements after the lower VAT rate has been introduced are not encouraging.

In January, the most substantial increase (3.7 per cent) was seen with oils and fats, as well as coffee, tea and cocoa (2.6 per cent). VAT cuts did not cover these products. However, despite the lower VAT rate, vegetables were 1.4 per cent more expensive than in December. There has been an increase year-on-year as well – in January this year, vegetables were 4.6 per cent more expensive than in January 2018.

When all is taken together, food prices in January were 0.4 per cent higher than in December. Compared to January 2018, food was cheaper by 0.8 per cent.

Expenditures for food and non-alcoholic beverages are the largest item in the household budget of an average Croatian family – they account for 27.81 per cent of the consumer basket. Therefore, the government calculated that the decreased VAT rate should save an average Croatian family 872 kuna a year. The calculation was obviously wrong since what actually happened is what many, including Finance Minister Zdravko Marić, warned about – there is no mechanism which could force retailers to turn lower VAT rates into lower consumer prices.

Consumer prices did drop in January by 0.9 per cent, but not due to lower food prices, but mostly due to falling clothing and footwear prices (13 per cent) during January’s seasonal sales.

Translated from Prvi Plan.

More news about taxes in Croatia can be found in the Business section.


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