Full transmission of prices charged to VAT Zero consumers
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Full transmission of prices charged to VAT Zero consumers
Several countries, including Portugal, have reduced Value Added Tax (VAT) on some products in recent years
The application of Zero VAT to some food goods last year was fully transmitted to the prices charged to consumers.
A study by economists from the Bank of Portugal (BdP) released this Friday reveals that this measure was passed on to the consumer throughout the time it was in force, having shown its “effectiveness” in “reducing consumer prices.
The measure also closely aligned with the “intended objective of providing immediate relief to consumers”. The BdP even estimates that the measure reduced monthly inflation by between 0.5 and 0.7 percentage points between April and May 2023.
When the political measure was reversed and VAT returned to the original rate, “the price increase implied a transmission of around 70%, on January 5, 2024, leading to the prices of treated goods returning to the same trajectory of prices of other food items”.
Several countries, including Portugal, have reduced Value Added Tax (VAT) on some products in recent years.
In April 2023, the Socialist Government reduced the VAT rate on a range of food products from 6% to 0% with the aim of mitigating the rise in inflation. The measure was in force until January 4th, after being extended in October.
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