Representatives of the agricultural sector inform the President of the consequences of repealing the reduced 5% VAT rate

On November 7, representatives of the largest agricultural non-governmental organizations in Latvia met with the President of Latvia, Edgars Rinkēvičs, to discuss the situation in the sector and the impact of the government's plans to abolish the 5% VAT tax on vegetables, fruits and berries typical of Latvia on the country's economy and growers.

Mārtiņš Trons, board member of the association “Zemnieku Saeima”: "We invited the President of the Republic to listen to us and hear us. Despite the fact that the last few years have been challenging for the industry, It is precisely thanks to the reduced VAT rate that Latvian farmers have been able to compete with imported products and develop.

Before the introduction of the reduced VAT rate of 5% in Latvia, the sector of vegetables, fruits and berries typical of Latvia had a very large share of the shadow economy. Imported vegetables and berries were often sold, posing as domestic farmers' products. In addition, the tax difference between Latvia and imported products contributed to a stable position for gray market operators, effectively dictating product prices on the market. Taking these facts into account, we hope that the sector will not be subjected to regular tax experiments.”

Elīza Ilze Malceniece, cooperative society “Mūsmāju dārzeņi”: "It is essential that by maintaining the reduced VAT rate, we can help small farms in the regions develop. Horticulture is precisely the sector in which compatriots returning to Latvia from living abroad can start a business. It truly hurts our hearts that so far both Prime Minister Evika Siliņa and Minister of Finance Arvils Ašerādens have ignored us, not responding to the call to meet with representatives of the sector and openly discuss the consequences of abolishing the reduced VAT. Therefore, we are very pleased and grateful that the President found time to meet with the sector."

What are the main risks of abolishing the reduced VAT rate for vegetables, fruits and berries typical of Latvia?

• Studies show that the shadow economy in the sector will decrease from the application of the 7% VAT rate to vegetables, fruits and berries typical of Latvia. On the other hand, by increasing the reduced VAT rate from 5% to 12%, the shadow economy indicators will inevitably increase again, which is contrary to one of the state's priorities to combat the shadow economy in Latvia.
• Contrary to the claims of some government representatives that the volume of imported products on the Latvian market has increased in recent years, this has happened due to the reduction of the gray market. Many shadow economy operators have “legalized” or ceased their activities. As a result, the statistics show real data on the import of fruits, vegetables and berries.
• The purchase and consumption of imported products in the Latvian market will increase significantly. The processing industry will be interested in purchasing imported vegetables and fruits, as they can be purchased at 0% VAT. For example, currently the prices of local and imported products are very competitive, but the situation will change dramatically from January 1, 2024. The trade industry will also be interested in purchasing imported products - at 0%.
• Traceability of imported products will decrease sharply. As the shadow economy grows, the volume of imported products in Latvia will increase significantly, including from third countries. This means that Latvian consumers will be sold much more products that have been grown using plant protection products that have long been banned in the EU, significantly affecting the overall quality of vegetables, fruits and berries sold in the market.
• It is important that, contrary to the government's intention to support local farmers, by implementing the plan to abolish the reduced VAT rate, Latvia will be flooded with low-quality imported products. Our growers will not be supported, but destroyed!

The largest agricultural non-governmental organizations in Latvia – “Farmers’ Council” and the association “Zemnieku Saeima” – went to meet with the President of Latvia, Edgars Rinkēvičs. "Representatives of the Farmers' Organization Cooperation Council, as well as the association "Latvian Fruit Growers Association", cooperative societies "Mūsmāju dārzenie" and "Baltijas dārzenie". In total, the organizations represented almost 15,000 Latvian farmers.