Tax changes in 2024 – VAT rates on food products

Tax changes in 2024 - VAT rates on food products

VAT rates on food products

The Polish Ministry of Finance has decided not to extend the temporary reduction of the VAT rate on basic foodstuffs beyond 31 March 2024. It is based on the continuing downward trend in inflation and favourable forecasts of the dynamics of food prices. From 1 February 2022, a periodic reduction in the VAT rate to 0% on certain foodstuffs that were previously subject to a 5% rate became effective. This change applies to basic foodstuffs such as fruits, vegetables, cereal products, dairy products and meat listed in items 1-18 of Annex No. 10 to the VAT Act. Initially, the zero VAT rate for this group of goods was introduced at an inflation rate of 9.2 per cent p.a. as of January 2022. This was planned to be in place until the end of 2023, but was eventually extended for a further three months. Today, the Ministry of Finance announced that there will be no further extension, hence the temporary reduction in the zero-rate VAT temporary reduction on certain food products will cease to apply from 31 March 2024.

The ministry also noted that according to preliminary data from the Central Statistics Office, inflation fell to 3.9 per cent in January. This is the lowest annual rate of increase in consumer prices since March 2021. There was also a decline in the annual rate of increase in food and non-alcoholic beverage prices to 4.9 per cent, the lowest since September 2021. The ministry also points to estimates of inflation, and its movements over the coming months, to support the decision not to extend the zero-rate VAT. In their view, both inflation (y/y) and the annual rate of increase in food prices will continue to decline in February and March.

What problems may taxpayers face?

Changes in VAT rates are likely to have a negative impact on consumers, as they may lead to an increase in food prices. At the same time, these changes will create problems for taxpayers trading in such products. They need to make appropriate changes to their systems and procedures by the end of March to ensure that VAT rates are applied correctly from 1 April 2024, including changes to the presentation of prices in shops. In addition, the 5% VAT refund on these products may present a particular challenge for retailers using cash registers. Technically speaking, a cash register ensures that the sale of goods is blocked when the tax rate changes – known as ‘tax staggering’. This means that when the VAT rate reverts to 5%, the sale of individual goods can be blocked if it includes goods with the same name for which the rate has been changed.

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