The Polish government extended the reduced VAT rate on food products. The regulation on the zero VAT rate has been in force in Poland since 1 February 2022, and will also continue to apply in the first half of 2023. The zero VAT rate is a part of the Government’s Anti-Inflation Shield and covers basic food products, such as fruit, vegetables, meat, dairy products and cereal products.
This decision is pro-social response mainly due to rising inflation. In the fight against inflation and the energy crisis, one of the most important activities of the government is to protect the houshold budgets of the Polish citizens.
Inflation in Poland is currently the highest in 25 years. According to the state agency Statistics Poland (GUS) annual inflation slowed in November to 17.4%, down from 17.9% in October 2022. The slowdown is the first since February 2022, when the Polish government introduced a range of measures, such as cuts on VAT for food and fuel aimed at shielding consumers from price rises. If February is excluded, inflation slowed in November for the first time since mid-2021.
According to the Chancellary of Prime Minister Mateusz Mazowiecki, maintaining a zero VAT rate on food in 2023 will have an impact on the average annual inflation rate. The reduction of VAT has helped lower the maximum peak of inflation by 3 to 4 percentage points a year. If it is 17-18% today, it would have been 21-22%.
According to the Chancellary of the Prime Minister, due to the reduction of the VAT rate on food from 5% to 0% from 1 February 2022, a total of PLN 7.6 billion (EUR 1.6 billion) has remained in the Polish people’s pockets. In 2023 this measure will cost next around PLN 8.0 billion (EUR 1.7 billion) and this is the cost which will have to be borne by the state budget.
Food accounts in Poland for at least 30% of household expenditure. The products covered by VAT changes account around 75% of household food basket. For this reason the VAT rate changes should be noticeable for the Polish consumers. However, it is difficult to meet now a consumer in Poland who will confirm any benefits for him resulting from VAT changes. In the retail chains only a few products with frozen prices (for example bread) can be found. As a rule, these are the lower quality products. The observed rising food prices in the chains for the most important products are still visible to the consumer.
The explanation of this situation is that the retail chains take price cuts as their profits. Although the price cut reduces the costs of chains, the control mechanisms for the implementation of lower prices are ineffective.
It should be also stressed that energy, fuel and fertilizer costs still determine food prices. Besides, further price increase is expected due to pre-Christmas demand. At the beginning of 2023 a new wave of inflation will be caused by enterprices due to increse in the minimum wage and higher social security contributions, resulting price pressure.
The rises in food prices accelerated in November 2022 to 22.3% year-on-year. Month-to-month, food prices rose in November by 16%. The significant decrease of food prices in Poland can be expected in the second quarter 2023 due to fall in world food prices.
