After rejecting for four months the application of zero VAT to a basket of basic products, repeating the Spanish example, the Portuguese government has reversed course and announced on Monday that, after the Easter holidays, 44 products will no longer have VAT.
Portugal investigates excessive supermarket profit margins and studies limiting prices
Further
The list has been drawn up by the Ministry of Health to ensure that tax benefits are not granted to unhealthy products and has been based on the best sellers in Portuguese supermarkets. The following are part of the list of VAT-free products: bread, potatoes, pasta, rice, onion, tomato, cauliflower, lettuce, broccoli, carrot, zucchini, leek, pumpkin, spinach, turnip, a selection of fruits, beans, chickpeas, peas, cow’s milk, yogurt, cheese, pork, chicken, turkey meat, beef, cod, sardines, hake, canned tuna, sea bream, mackerel, eggs, olive oil and butter, among others.
In mid-March, the Minister of Finance, Fernando Medina, assured that he did not consider the VAT reduction a priority measure “because of the consequences that have already been seen in the countries that have applied it”, but he has changed his mind. Last Friday, Medina spoke of a measure that will be “effective” and that will apply to “products and not to brands.” The tax reduction program has a cost for the State of 600 million euros, as announced on Monday by the Prime Minister, António Costa.
To prevent the VAT reduction from being quickly absorbed by an increase in margins, the Government has reached an agreement with companies in the food production and distribution sector. The executive has promised to reduce the tax on basic necessities and, in exchange, companies must pass this reduction on to the final consumer. António Costa thanked the different parties for his efforts in a negotiation “that was not easy”. The tax reduction is expected to last for a period of six months.
This announcement comes after weeks of inspections of supermarkets across the country to detect possible price abuses by distributors, which has raised suspicions about the profit margins of food distribution on some products. The Finance Minister wanted to make it clear on Friday that during the tax reduction period “there will be monitoring of the execution of the agreement” with producers and food distribution.
This is just one of the measures in a new package against inflation presented the day it was revealed that the Portuguese deficit for 2022 was 0.4%, when the initial government forecast was 1.5%.
Monthly checks of 30 euros
In addition to eliminating VAT for six months on some 44 products, Portugal will increase the salaries of the 742,000 public administration employees by 1% and will increase the food subsidy for these employees by 80 cents, up to six euros a day.
Throughout 2023, monthly checks of 30 euros will also be delivered to more than one million Portuguese families with limited resources and beneficiaries of social benefits. The Government calculates that this subsidy can help three million people belonging to economically vulnerable families: around one in three Portuguese. To this aid is added a new check of 15 euros per month for each child of a vulnerable family.
There are also 140 million euros destined to support producers in the face of increased costs in agricultural production, in a program that the Government has not yet detailed.
This new package comes 200 days after the previous one, presented in September 2022. On that date, the Government had announced the attribution of a single aid of 125 euros for people who receive a salary of up to 2,700 euros per month, 50 euros per each child, the reduction of VAT on electricity and the freezing of public transport prices in 2023, among others.
Although there is budgetary room for more measures, the Portuguese government wants to continue on a path of public debt reduction popularly known as the “correct accounts policy”, containing spending and limiting public investment to balance a debt that stands at 113.8% of GDP.