IN A CHANGE to the country’s tax legislation, the government of Robert Fico has pleased some not-yet-clearly identifiable group of farmers by lowering the value added tax for selected products sold directly from their farms to consumers. However, the reduction of VAT from 19 percent to 6 percent for the so-called ‘courtyard sale’ of selected kinds of meat, eggs and milk has already generated many opponents who warn that a selective tax cut like this might deform competition and attract unwanted attention from the European Union.
The revision to the law on VAT was prepared by Vladimír Mečiar, the head of the Movement for a Democratic Slovakia (HZDS), and his fellow MP Tibor Cabaj, and Slovakia’s parliament approved the draft legislation on March 4.
The parliamentary deputies turned a deaf ear to the Slovak Union of Meat Processing Companies, the Slovak Food Chamber and the National Union of Employers (RÚZ) who had all demanded the withdrawal of the draft from the parliamentary agenda.
The Finance Ministry warned that the revision might have a negative impact on public finances and critics of the legislation suggested it might also inspire speculative and tax evasion schemes.
Mečiar and Cabaj calculated the loss in budget revenues to be €1.760 million in 2010 and €2.816 million in each of the two following years, according to the SITA newswire.
The Fico government had already cut the 19 percent VAT to 10 percent for some selected goods such as books, pharmaceuticals and selected health-care products for physically disabled people.
On March 2 Prime Minister Fico endorsed the idea of the VAT cut in the way proposed by Mečiar and Cabaj, suggesting that it might inspire even more sales of selected products via this method of direct farm sales.
Zsolt Simon, an independent MP and former agriculture minister, warned that the amendment was only a populist step and that Slovakia could face action by the European Commission because, he said, the law contradicts European rules by introducing different tax rates for identical products within Slovakia, SITA wrote.
“The European Union says that similar products and services should be taxed at the same rate on the territory of each member state,” said Simon, as quoted by SITA. “The law absolutely violates this principle and Slovakia will face an [EC] proceeding because of this law.”
Simon said that the HZDS-crafted amendment is an act of populism because VAT currently does not apply to the sale of food products directly from farms up to the value of €49,790. Thus only farmers with annual turnover exceeding about €50,000 would benefit from the law.
Another former agriculture minister, Zdenka Kramplová who had to leave her post under pressure from Mečiar, also poured scorn on the law prepared by her former party leader, saying it contradicts principles of equality in business.
She agreed with Simon that the legislation is in conflict with EU rules. Kramplová also charged that the law encourages wider availability of goods of a lower hygienic quality for households.
Zuzana Homolová of the Union of Ecological Agriculture confirmed to the Sme daily that the number of farmers selling from their ‘courtyard’ who are VAT payers is likely minimal, even though there are no available statistical data.
“In my opinion, courtyard sales should be for small farmers; thus I do not know for whom this revision has been made,” Homolová said. “It is a pre-election bubble.”
The Slovak Chamber of Food and Agriculture (SPPK) said it could imagine a more comprehensive solution for taxes applying to agricultural and food products such as cutting the VAT for a specified foodstuff, the spokesman of the SPPK, Stanislav Nemec, told The Slovak Spectator, adding that the chamber has already proposed such a change.
“However, the SPPK accepted the [government] argument that in times of economic crisis more serious interventions into the revenue side of the state budget could cause difficulties with financing the needs of the state,” Nemec said, adding that probably this is why the authors of the legislation reached for such a “non-standard step”.
According to Nemec, the VAT cut could mainly help small farmers since larger producers will continue selling their products through traditional retail channels. The smallest farmers who are not VAT payers will not, logically, benefit from the change either, he added.
Nemec, however, does not share others’ concerns that the VAT cut would deform the market and competition.
“We do not expect that a large part of agricultural production would be carried out through the tax-advantaged courtyard sales in Slovakia; thus it should not mean a serious intervention to competition in the market,” he said.
Nemec also dismissed concerns about reduced hygienic standards, stating that this form of direct sale is subject to regulation and inspection by government food-safety authorities.
