The Czech Ministry of Finance has put forth a proposal to introduce a reduced value-added tax (VAT) rate for plant-based milk substitutes starting from January 2022. These non-dairy alternatives, commonly consumed by individuals with lactose intolerance or allergies, will be subjected to a reduced VAT rate of 12%, aligning them with the rate applied to cow’s milk and other dairy products. This decision marks a significant departure from the initial suggestion to subject milk substitutes to the standard VAT rate of 21%.

According to Michaela Lagronová, spokesperson for the Ministry of Finance, the decision was reached following an analysis conducted by tax experts. The determination was independent of the appeal made by the Ministry of Health, Ministry of Regional Development, and Human Rights Commissioner Klára Šimáčková Laurenčíková to include soy, nut, and grain milk substitutes within the reduced VAT rate. The consultation period for this matter ended on Monday, with the Ministry of Health highlighting that only around 10% of Czech citizens suffer from lactose intolerance.

The current reduced VAT rates of 10% and 15% will be consolidated into the new reduced rate of 12%. The standard VAT rate of 21% will remain, but certain items will be shifted to the new reduced rate. The government will engage in discussions on the proposed VAT changes in the coming weeks.

The decision to reduce the VAT rate for milk substitutes has been well-received by consumers who have been burdened by higher prices. This move will facilitate the choice of healthier and environmentally-friendly alternatives to traditional dairy products.

However, some experts have cautioned that these proposed changes may have negative economic implications. A recent report suggests that the VAT alterations could result in a 0.8% slowdown in the economy.

The ongoing debate on VAT rates includes calls to include additional items in the reduced rate category, such as menstrual products and children’s diapers. The Ministry of Finance has clarified that the overall impact on public budgets will be minimal, with an anticipated annual decrease of only 2.8 billion Czech crowns in VAT revenue. Economists, however, emphasize that the actual effects of these changes will depend on various factors.

In the previous year, the Czech government collected 345.2 billion Czech crowns from VAT, representing a year-on-year increase of 15.6%.

Article by Prague Forum