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“The end of zero VAT will put pressure on household budgets,” APED says.

“The end of zero VAT will put pressure on household budgets,” APED says.

With the end of the VAT exemption, and despite the decline in the inflation rate, there will be an increase in the prices of some products by the end of January, warns the Director General of the Portuguese Association of Distribution Companies (APED). The increases arise from the reintroduction of the 6% tax rate, but also from pressures on raw materials and energy costs.

It's time to say goodbye to zero VAT on the basket of basic goods covering 46 food products. The measure, implemented in mid-April to mitigate the effects of inflation, expires on Friday after being extended twice. With foodstuffs deemed essential after VAT was once again included in the price, consumers will, from tomorrow onwards, pay an additional 6% in relation to the now reintroduced tax rate, increasing pressure on raw materials, especially on high value-added cereals. . Of the impact on the prices of meat, eggs, milk, and the cost of energy, warns, in an interview with JE, Director General of the Portuguese Association of Distribution Companies (APED).

Gonzalo Lobo

“The increase in prices should be felt at the end of January. From the beginning, we must think about the final price by an additional 6% and hand over this amount to the state. Moreover, we still face some pressures on raw materials, which are clearly exaggerated, such as grains.” “This has consequences for the production of meat, milk and eggs due to feed and bread prices.”

The head of APED adds that the price of cocoa, with its implications for other products, is “under severe pressure” and that there have been some declines in sugar, but “in between that should be, and it is normal for consumers to feel that.” Pockets” re-applying value-added tax on products covered by the measure, as well as maintaining high prices for some basic raw materials. It also highlights the costs of other factors of production, In a scenario characterized by greater uncertainty resulting from the conflicts in Ukraine and the Middle East, with consequent implications, for example, for energy prices.

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Gonzalo Lobo “Considering this time of year.”

Consumers will therefore feel their budgets are “under greater pressure” with increased spending on food purchases on which as of Friday, January 5, VAT will be zero, in a measure in force since April last year that was supposed to end. in October, but ended up extending it until the end of the year and again to January 4 due to “operational difficulties” in retail. Zero VAT was due to end at the end of 2023, but the government has given a further four days for businesses to adapt to the new reality and new prices.

Prices will reflect increases in other costs

Gonzalo Lobo Xavier continues that the final price of many food items may reflect the increase in other costs incurred by companies. “We enter 2024 with a significant increase in the minimum wage, which will have implications for the average salaries of other workers, as well as with increases in tolls and transport, which is naturally reflected throughout the value chain and in the final price of products.” He concludes.

For the Director General of APED, “families are under great pressure on their budgets,” recalling that green taxes will also increase, that is, fees that will fall on light bags and packaging for take-out orders, which should take effect first quarter of this year. “Overall, it is clear that it will have an impact on families' pockets,” he asserts.

APED praises the positive impact of zero VAT

As for the balance of the measure over the eight months in effect, Gonçalo Lobo Xavier has no doubt: “There is no doubt that it has had a positive impact on consumers and families. First, the reduction in the price of the food basket by 6% within the selected product category.”

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The President of APED also highlighted to JE that “the most important thing is the combination achieved with the support of 200 million euros for national production” to support several agricultural sectors to compensate for the increase in production factors. An amount that, according to the Portuguese Farmers' Confederation (CAP), has not yet reached Portuguese farmers in full, since at the end of December, 20 million euros were still to be paid.

Gonzalo Lobo

“To reduce the prices of these products by 6% and ensure a long-term impact of lower prices, this had to be combined with support for production,” adds the Director General of APED, recalling that zero VAT was implemented in mid-2019. April “But support for production “It didn't arrive until mid-September.”

For Gonzalo Lobo Xavier, the zero VAT measure was “well implemented”. “We have precisely implemented what was asked of us. The combination of production support ultimately creates a positive impact even though it is not fully completed,” he said, adding that “the companies’ behavior was exemplary.”

He also says that “it turns out in 2023 that the sector made a great effort to absorb the increase in prices.” Food retailing did not increase profit margins and there were no excessive profits. There was an increase in sales value due to inflation, but there was no increase in volume.”

The food basket increased by approximately 11 euros

The price of the food basket rose by about 11 euros between the first and last week of 2023. In extra virgin olive oil and hake, the increase amounted to more than three euros. As for oranges, the price per kilo reached 54 cents, according to Deco Prosti’s calculations.

Last year, the food basket of 63 basic commodities monitored by Deco Protest rose by 10.77 euros, to 230.17 euros. On January 4, 2023, it costs €219.40. Extra virgin olive oil was the product whose price increased the most. On December 27, a 75 cl bottle of olive oil cost €9.44, €3.52 more than in the first week of the year.

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This basket reached a record value on March 15 of this year, reaching 234.84 euros. However, on April 18, as the zero-sum VAT came into force, it began to decline. But this trend reversed in mid-September, when the total price of the basket began to rise again, exceeding the value recorded at the beginning of the year.

The highest value was seen on November 22, when its cost reached 141.92 euros. On December 27, according to Deco Prosti, this set of foods cost 139.93 euros, just over one euro more than in April.

Zero VAT was implemented on 18 April, covering a group of 46 types of food goods that will return from 4 January to the usual VAT rates, returning, on most goods, to a rate of 6% (as is the case, e.g. , in bread, olive oil, eggs, milk, rice, pasta, some fruits, vegetables, meat and fish) and in the case of oil by 23%.

But the measure did not affect all food items in the same way, as the price of some fell as expected, while others remained more expensive than before the government's decision, as shown by the monitoring of 63 products carried out by the protest organization. Deco.

After it was approved in the context of high inflation, the government dropped this measure from the 2024 state budget (with the exception of four days, now granted), choosing, as an alternative, to “direct food support to the most needy families”, by enhancing social benefits.