The zero VAT on food is intended to support Poles at a time of accelerating, even galloping inflation, which is already approaching 9 percent year-on-year in recent times. The government has included zero VAT on food in the so-called “anti-inflation shield,” which has already partially come into effect, in addition to some tax breaks, as well as reductions in taxes and excise taxes on fuel. When will zero VAT on food take effect? How much can prices in stores fall thanks to the VAT cut on food?
What is inflation?
In order for us to touch on the shielding measures that the government has recently implemented, it is worth noting in a few words what inflation is in its essence, and what is behind its significant recent increases.
So, inflation is nothing more than an increase in the overall price level in a country’s economy. An annual rate of 1.5 to 3.5 percent is considered a moderate, and therefore expected, increase in prices (inflation). It is worth noting that the latest reading from the Central Statistical Office indicated an annual increase in overall prices of 8.6 percent, and analysts’ estimates say that the peak of inflation, or its maximum level, is expected at 9.5 percent this year.
Price increases, i.e. inflation, are generally felt by all citizens of a country, but each time we talk about average inflation, not every person will feel it similarly. This is because some products and services increase in price much faster than others, so inflationary feelings can depend on, among other things, the way we live, how we spend our leisure time, the services we use, or even the work we do.
What is an anti-inflation shield?
The anti-inflation shield is the Polish government’s response to galloping price increases in recent times. According to the ruling party’s forecasts, the first shield measures would ultimately lower inflation by 1-1.5 percent, but the real effects have yet to be measured.
In the first version of the anti-inflation shield, the government set its sights on, among other things, lowering excise taxes on fuel for a period of five months, reducing VAT on electricity from 23 to 5 percent between January and March 31, 2022, reducing VAT on natural gas from 23 percent to 8 percent, also between January and March 2022, or abolishing excise taxes on electricity.
In addition to this, in the anti-inflation shield 1.0, the government decided to introduce a shield allowance for millions of Poles, as well as savings in public administration, which would consist of “not creating new jobs” in the public sector.
Thesecond version of the anti-inflation shield appeared just a few weeks later, and was intended to be a kind of supplement to its predecessor. They brought, among other things:
- A reduction in VAT on fuel from 23 to 8 percent.
- A reduction in VAT on food to 0 percent.
- A reduction in VAT on gas to 0 percent.
- A reduction in the tax on fertilizers to 0 percent.
- Reduction of VAT on electricity and heat to 5 percent.
It is worth noting at this point that those in power have decided to introduce tax cuts on food, among other things, without waiting for approval from the European Commission, which realistically, as of the date of publication of this article, Poland had not yet obtained.
Since when zero VAT on food?
Zero VAT on food, as well as all the changes that the anti-inflation shield 2.0 introduces, are to come into effect from February 1, 2022. Immediately after the announcement of the VAT reduction on food products from 5 percent to zero, there were calls from the government for businesses to reduce food prices by the value of the tax credit.
Also joining the action was the Office of Competition and Consumer Protection, which, by the hands of its president Tomasz Chróstny, did not so much make an appeal as threaten to start price controls in stores, and companies that do not realistically reduce the prices of food products face consequences.
Zero VAT on food and the European Commission
The zero VAT on food first became quite prominent when the government announced the anti-inflation shield 1.0. At that time, politicians of the ruling party argued that they wanted to introduce zero VAT on food, but the European Commission did not give its approval. Quite quickly, however, it turned out that Poland had never applied for such a possibility, which somewhat discredited the representatives of the power camp.
Talks about reducing VAT on food were started by government representatives with the European Union a few weeks later, and the face of the anti-inflationary shield 2.0 became precisely the reduction of VAT on food. Interestingly, the ruling party introduced zero VAT on food without waiting for the EC’s approval.
Zero VAT on food until when lower food prices?
Zero VAT on food is to be in effect for 6 months from the date of introduction, i.e. until July 1, 2022. It will cover food products whose current VAT rate is 5 percent. However, the government declares that if inflation persists for a longer period, there is the possibility of extending the protective mechanisms included in the anti-inflation shield, and therefore zero VAT on food.
Store inspections to be carried out by the Office of Competition and Consumer Protection are to start from the first day of the introduction of the new VAT rates.
Read more about the anti-inflation shield on OKBR.pl
