Consumers will be paying zero VAT on a number of essential commodities for the next six months as of Friday, as the government introduces its latest measure to relieve households from ongoing inflationary pressures.
The reduction was greenlighted by the cabinet on Wednesday, as despite March seeing the lowest inflation rate for 13 months, households continue to feel the cost-of-living pinch as they spend more on food.
Earlier this week, the Ministry of Finance issued a statement clarifying the list of essential goods now exempted from VAT.
According to a Cabinet decree, the following will carry zero VAT as of Friday:
- Bread: all types of bread, fresh or frozen, with or without sourdough (e.g. white, black, wholemeal, multigrain, rustic, rye, cornbread, baguettes, ciabatta, sliced bread, pitta bread).
- Milk: fresh milk (e.g. cow, goat, sheep), sweetened, condensed, long-life, flavoured (e.g. chocolate, banana), non-dairy milk (e.g. almond, soya, rice).
- Baby food: powdered, dry and/or liquid food intended for consumption by children.
- Children’s diapers.
- Adult incontinence products.
- Menstrual hygiene products (tampons, sanitary towels and incontinence pads).
Bakery products, dried bread and any bread with added ingredients such as raisins, nuts, and flavourings are excluded.
The measure comes into force on Friday, May 5 and will expire on October 31.
In comments to media, Finance Minister Makis Keravnos said that the reduction is Brussels-approved as it is based on EU directives.
The decree will be valid for six months and renewed if the government finds it necessary.
Second list
A second list of commodities and foodstuffs, for which VAT will be reduced, is also being prepared.
These items will see their VAT drop from 19% to 12%, 10%, 5% and 3% accordingly.
Keravnos said that legislation does not allow for tampering with VAT on non-essential commodities, which means that a special bill will need to be prepared and submitted to the House.
Meanwhile, consumer associations have expressed concerns that retailers may take advantage of loopholes, as the relative legislation does not oblige businesses to lower prices on the shelves.
In comments to the Cyprus News Agency (CNA), the head of the Cyprus Consumers’ Association, Marios Drousiotis said that authorities will need to step up checks at shops.
As he said, “the reduction of VAT does not impose that retail price will also be brought down. There is scope for retailers to reap the benefit of the VAT reduction to their own profit”.
Giving an example, Drousiotis said that a carton of milk currently costs 2 euros, carrying a 5% VAT, and the price on Friday should drop by 10 cents.
“Producers or retailers could push up prices by 10 cents, taking advantage of the reduction,” said Drousiotis.
The government has also greenlighted a new digital platform for monitoring retail product prices, known as the e-basket, which constitutes state intervention in the free market.
Earlier last month, the Council of Ministers gave a bill the go-ahead and will soon be presented to parliament.
Once passed, the e-basket will be available as a smartphone application.
The application allows consumers to see the lowest prices for some 350 products while also working out the cost to travel to supermarkets.
