Latvia cuts VAT on bread, milk, poultry and eggs from today as households battle rising prices

Grocery bills across Latvia should feel lighter from today, as a temporary cut to value-added tax on four everyday staples — bread, milk, poultry and eggs — takes effect nationwide. The rate on these products drops from the standard 21% to 5%, making it one of the most direct government interventions in consumer prices anywhere in the European Union this year, and a test case other capitals are watching closely as food inflation lingers across the bloc.

A targeted response to a stubborn problem

The reduction, passed by the Saeima in April and confirmed by Finance Minister Zane Ozola’s ministry last week, targets the four categories that make up the largest share of low-income households’ food spending. Unlike blanket VAT cuts tried elsewhere in the EU, Riga has opted for a narrow basket, arguing it delivers relief where it is most needed without blowing too large a hole in the budget.

“We looked at what Latvian families actually buy every week, not what makes the best headline,” Ozola told reporters in Riga on Tuesday, defending the decision to exclude items like cheese and prepared meats from the cut.

How it compares across the Baltics and the EU

Lithuania and Estonia have so far resisted similar moves, with Vilnius arguing that reduced VAT rates rarely pass fully through to shelf prices. The European Commission has previously cautioned member states that food-specific VAT cuts can leak into retailer margins rather than consumer savings, pointing to Poland’s 2022–2023 experiment with a zero rate on basic foods as a mixed case study. Germany and France maintain reduced rates of 7% and 5.5% respectively on most food staples, while Latvia’s standard 21% rate has long been among the higher end of the EU spectrum, alongside Sweden and Denmark. The temporary five percent band brings Riga roughly in line with Warsaw’s current approach to bread and dairy.

Ilze Kalniņa, senior economist at SEB Latvia, expects the pass-through to be partial. “Retailers will likely absorb some of the cut into margins initially, especially given how thin they already are in the dairy sector,” she said. “Households should see something closer to a 10–12% drop in the price of these specific items over the next two months, not the full 16 percentage points of the tax change.”

What happens next

The Competition Council has said it will monitor pricing at major retailers, including Rimi and Maxima, to check the discount is reaching shelves. A first compliance report is expected in September, ahead of a broader review of Latvia’s economic performance at the year’s midpoint — a comparison with Lithuania and Estonia that balticnewstoday.com will track in detail as the second half of the year unfolds.

For now, the cut offers Kulbergs’ four-month-old coalition a tangible, visible policy win ahead of October’s parliamentary election, even as opposition parties argue the relief is too narrow and too short-lived to meaningfully change how Latvian families experience the cost of living.