Lower VAT on food draws Lithuanian shoppers to Latvian stores
After Latvia cut VAT on several basic food items, spending by Lithuanian residents in Latvian stores has risen, according to compiled data. The price gap between the two neighboring countries has widened.
Since July 1 this year, Latvia has temporarily lowered the value-added tax (VAT) rate for a year on several staple food products — bread, milk, eggs, and fresh or chilled poultry meat. The rate for these goods dropped from 21% to 12%, a change that has been reflected in lower shelf prices in stores.
At the same time, prices for these same products have risen in Lithuania during this period, widening the gap between price levels in the two neighboring countries. This difference has not gone unnoticed — compiled data shows that spending by Lithuanian residents in Latvian stores has increased.
The trend was reported by the Lithuanian news outlet Delfi.lt, citing compiled data on Lithuanian residents' spending in Latvia. The rise in spending suggests that some Lithuanian shoppers, particularly those living closer to the Latvian border, are taking advantage of the lower prices and doing more of their grocery shopping in Latvian stores.
The reduced VAT rate on basic food products in Latvia is a temporary measure set for one year, so it is not yet known how the situation will develop once that period ends. Still, the shift already illustrates how a tax policy change in one country can affect cross-border shopping flows and consumer spending habits.
