INFLUENCE OF THE REDUCED VALUE ADDED TAX RATE ON FOODSTUFF ON THE EXPENSES OF HOUSEHOLDS
The reduction of the value added tax (VAT) rate on foodstuffs has repeatedly been a subject of discussion in Estonian society. The
purpose of the discussion has only been political rhetoric by opposition parties which has not been supported by specific studies. In this
manner, Riigikogu, the Parliament of Estonia, discussed the subject in 2008 and 2011. The detailed record of the Riigikogu does not show
any substantiated reasons for draft legislation by their introducers for reducing the VAT rate on foodstuff. In both cases, the draft legislations
were rejected by majority vote and excluded from further proceedings. If the VAT rate on foodstuff had been reduced by up to 5%, households
in need of assistance in 2004 would have saved a total of EUR 38 million on VAT on foodstuff and all remaining households together
would have saved EUR 46 million. In 2012, the savings of households in need of assistance would have been EUR 44 million and the
remaining households would have saved EUR 101 million total. Therefore, the reduction of the VAT rate in Estonia would have benefited those
households that do not need any subsistence benefits the most. The calculated receipt of VAT in Estonia’s state budget in 2004 would have
declined by EUR 84 million and by as much as EUR 145 million in 2012. The aim of the study is to determine the impact of VAT reduction
on food on the expenses of Estonian households and revenues of Estonia’s state budget in the periods of 2004-2007 and 2010-2012.
The comparative analysis method is used in the research.
Keyword(s): value added tax, households, saving
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Economics and Rural Development ISSN 1822-3346 / eISSN 2345-0347
This journal is published under the terms of the Creative Commons Attribution-Noncommercial 3.0 Unported License. Responsible editors: Prof. Dr Vilija Alekneviciene, Dr Gunita Mazure.