Proposed Amendment to the Lithuanian VAT Act: Introducing a Reduced VAT Rate for Essential Food Products

The proposed amendment to the Lithuanian VAT Act aims to introduce a reduced 9% VAT rate for essential food products, as well as catering and beverage services (excluding alcoholic beverages). This initiative seeks to address the high cost of food in Lithuania, improve purchasing power, and align with similar practices observed across European Union (EU) Member States.
 
Currently, Lithuania applies a standard 21% VAT rate, which is one of the highest in the EU. Many EU countries, such as Ireland (0%), Poland (5%), and Germany (7%), apply reduced VAT rates to essential food products. Additionally, countries like Italy and Spain apply preferential rates to specific food categories, such as bread (4%), while the Czech Republic offers a reduced rate of 10% for baby food. These examples highlight a broader European trend of supporting citizens' purchasing power by reducing VAT on food products.
 
The proposed amendment outlines the establishment of a list of essential food products eligible for the reduced VAT rate. This list would be determined, maintained, and periodically updated by the Lithuanian Government or its authorized institutions. By doing so, the measure aims to lower the prices of staple foods, reduce dependence on imports from neighboring countries, and foster growth in the domestic food market. The anticipated 5–8% reduction in food prices could lead to increased consumption and investment in local food production, boosting Lithuania's competitiveness within the EU single market.
 
In addition to food products, the draft law proposes extending the reduced 9% VAT rate to catering services. This change is expected to alleviate economic pressures on catering businesses, particularly in a market where the high standard VAT rate has been a significant burden. Lower VAT rates on these services could encourage greater spending on dining out, providing a much-needed stimulus for the hospitality sector.
 
The draft law also addresses social challenges. Rising food prices and increasing income inequality have pushed many low-income households in Lithuania closer to relative poverty. By lowering the cost of essential goods, the proposed measure aims to support vulnerable populations and enhance their access to basic needs.
 
The proposed amendment is scheduled to be discussed during the spring session of the Lithuanian Parliament (Seimas). If approved, the reduced VAT rate is expected to take effect on July 1, 2025. This timeline ensures compliance with legislative requirements, which mandate that tax changes come into effect no earlier than six months after their publication.
 
While the amendment holds significant potential benefits, it is not without challenges. A short-term decrease in state revenue from VAT is anticipated, though this is expected to be offset by increased consumption over time. Furthermore, implementing this change will require precise planning and additional secondary legislation to ensure transparency and fairness in defining the scope of eligible products.
 
In conclusion, the proposed VAT amendment reflects Lithuania's commitment to addressing economic inequalities, supporting local industries, and aligning with EU best practices. If implemented, it could bring meaningful relief to consumers and businesses while fostering long-term growth in the domestic market. The next steps in the legislative process will determine whether this measure becomes a reality.

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