Government mulling reduced VAT for basic necessities

A list of popular food items to be sold without VAT charges is currently under consideration by the government.

As reported in Philenews on Wednesday, the list is likely to include 10-15 foods and other items considered to be basic necessities, such as bread, milk, and baby food.

The possibility of temporary VAT reduction on these items to relieve consumers came after the EU Commission informed member states of this option. In fact, some countries have already reduced VAT on a range of food and other products.

According to Philenews, the proposal is underway at the ministries of finance and trade who are selecting the goods for which the EU will be asked to reduce or temporarily abolish the tax, and officials are preparing bills to be submitted to Parliament for approval.

Milk, bread and baby food, slated for a VAT reduction down to zero, are currently taxed at 5 per cent. Other products considered for reduction include detergents, fabric softeners, toilet paper, baby nappies, cleaning supplies and adult diapers, with VAT on these items expected to be reduced from 19 to 5 per cent.

The finalised lists will be subject to the approval of Brussels.

The ministry of finance will determine the period for the reduction as it has the task of ensuring the state budget will not be substantially affected.

Mechanisms are being worked out to curtail any profiteering by retailers to make sure VAT savings will be reflected genuinely in lower prices at the point-of-sale.

As part of his pre-election promises, President Nikos Christodoulides had stated his intention to reduce VAT by decree, on photovoltaics (from 19 per cent to zero), and on children’s items (from 19 to 5 per cent), as well as to raise the tax-free income bracket from €19,500 to €24,500, Philenews recalled.

The increase in tax-free income is included in the wider reform of the country’s tax system, for which the ministry of finance has commissioned an evaluation.

The recent extensions of electricity subsidy and fuel tax reduction were also efforts to mitigate economic hardship and are estimated to be costing the state €5.96 million.