This staple foods policy will stay free of value added tax at least until November 1, and if inflation continues, the tax relief could remain through the end of the year. The government officially announced this Tuesday that the measure will stay in effect. This includes a 50% reduction on oil and pasta from 10% to 5% through December 31, but the government reserves the right to repeal the tax cut on November 1 if September core inflation data fall below 5.5%. The September figures will be released in October by the National Institute of Statistics, and any cancellation would take effect on November 1. For context, core inflation, which excludes volatile food and energy prices, stood at 6.1% in May, just 0.6 percentage points above the target.
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According to government projections, extending the tax relief into the second half of 2023 would save families 661 million euros, matching the savings achieved in the first half of the year. In total, the policy’s budgetary impact would reach 1.32 billion euros.
The VAT reduction on staple foods is part of a royal decree approved by the cabinet on Friday, authorizing the seventh shock plan designed to cushion the impact of war and inflation driven by the conflict in Ukraine. The estimated budgetary cost for this package is 3.8 billion euros.
“What we have done so far keeps the VAT discount aligned with price developments and the overall trajectory of staple food costs, while remaining adaptable to how the economy responds,” said Nadia Kalvino, First Deputy Head of Government and Minister of Economic Affairs, in an interview with a national radio network. “We believe the VAT reduction should be sustained, but it always depends on how prices evolve in the coming months.” Attribution: Kalvino interview source
For now, staple foods such as bread, pasta, milk, cheese, and eggs, along with fruits and vegetables, legumes, tubers, and cereals, will continue to be sold without VAT. Oil and pasta will carry a 5% rate.
However, consumer groups were quick to criticize the move. The association argued that extending the VAT relief on basic foods without ongoing checks on its effectiveness over the last six months misses the chance to verify the measure’s real impact. In their view, prices for food items have not fallen and, in fact, show about a 12% rise compared to a year ago. Attribution: consumer group statement