Portugal plans zero VAT for essentials

Items yet to be determined

Continente, which is working with the government to keep prices lower and VAT rates reduced

Bloomberg reports that Portugal plans to introduce a VAT rate of zero for a basket of essential food products as it tries to ease the cost of living crisis.“We are working with the production and distribution sector on a response that translates into a price reduction in a basket of goods that has yet to be determined,” Finance Minister Fernando Medina said at a press conference on Friday.

“The solution is to move toward a zero VAT rate on a basket of essential products.”This measure would be in place from April to October, the government said in a presentation. Portugal currently has three VAT rates: a standard rate of 23%, a rate of 13% and a reduced rate of 6%. The lower rates are applicable to some food products. Madeir’s headline rate of VAT (IVA) is 22%

The government also plans to spend €195 million ($210 million) to increase public sector workers’ wages from April and €580 million to help vulnerable families deal with rising prices. Portugal’s average annual inflation rate reached 7.8% in 2022, the highest in 30 years, according to the country’s statistics institute.

On Thursday, in a debate in parliament, the prime minister announced that his government would work with the agents of the food chain to ensure a reduction in the price of essential goods.

Continente will absorb some price increases

Bloomberg also reports that Modelo Continente, Portugal’s biggest supermarket chain, has said it’s willing to accept lower profit margins to absorb some of the price increases that are causing customers to cut back on spending. 

“We’re trying to avoid passing on those costs to consumers,” said Joao Dolores, the chief financial officer of holding company Sonae SGPS SA, which controls Continente. “The level of inflation in Portugal is very hard on Portuguese families. We see them spending less,” he said on Thursday at a press conference in Oporto.

COVID-19 in Madeira: updates can be found in an earlier post

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