VAT to Be Reduced

Retailers Promise That the Relief Will Reach Consumers

Retailers have agreed to pass on the VAT reduction to consumers starting July 1. (Stock photo)(Bild: stock.adobe.com/Olga Yastremska, New Africa, Africa Studio)

Next Wednesday, July 1, the value-added tax on certain staple foods will drop from 10 to 4.9 percent. Supermarkets, bakeries, and other retailers plan to pass these savings on to consumers despite the additional costs—even though the effort involved is enormous.

Rising prices—especially for food—prompted the government to take action. With the reduction in VAT on staple foods, every household in Austria will have about 100 euros more to spend each year, officials say. The loss in tax revenue will cost the government around 400 million euros, which is to be recouped through a packaging and plastic tax.

In any case, retailers promise that they will pass on the lower tax in full to consumers. “We are doing everything we can to ensure that 100 percent of the relief reaches people from day one,” affirms Rainer Will, head of the Retail Association.

We are doing everything we can to ensure that 100 percent of the tax relief reaches consumers from day one.

Rainer Will, Handelsverband-Chef

The transition cost millions of euros
However, the effort involved was enormous, as inventory management, accounting, and point-of-sale systems for thousands of items had to be adapted to the new tax rates under significant time pressure. This was particularly difficult for smaller local retailers. In addition, the transition cost the industry around six million euros.

Retailers have agreed to pass on the VAT reduction to consumers starting July 1. (Stock image)(Bild: stock.adobe.com/Olga Yastremska, New Africa, Africa Studio)

The list of food items that will be subject to the reduced rate in the future is, in some cases, not easy to understand. The criterion was the classification according to the customs tariff, not the product name.

Many bizarre cases in practice
Specifically, these include milk, yogurt, butter, eggs, vegetables (fresh, refrigerated, frozen), fresh fruit from Austria or Europe, rice, wheat flour, semolina, pasta, table salt, bread, and pastries.

This is clear in theory, but in practice, there will be many unusual cases. Example: A baker sells a roll and a package of butter. The reduced tax rate of 4.9 percent applies to both. Unless, that is, the customer has the pastry, butter, and perhaps milk served at the bakery’s snack counter—in which case the rate goes back up to 10 percent.

The same applies if the baker slices open the roll and puts butter inside. The same applies to a sausage roll, which is subject to a 10 percent tax rate as a finished product. However, if the roll and the sausage are sold separately, the reduced tax rate applies—but only to the roll!

Other tidbits: Plain yogurt qualifies for the reduced rate, while fruit yogurt generally does not. As for flour varieties , wheat and spelt flours are on the list, while rye flour remains at ten percent. Regular butter will become cheaper, unlike yogurt or herb butter. Spinach: 4.9 percent; creamed spinach: ten percent...