Hungary Plans to Cut VAT on Fruit and Vegetables from 27% to 5%

Hungary’s new government plans to cut Value Added Tax (VAT) on fruit and vegetables from 27% to 5%, with legumes potentially added later. The change is not yet confirmed in adopted legislation. If implemented, retailers and food businesses would need to update VAT rates in their systems.

Hungary’s new government is planning to reduce the Value Added Tax (VAT) rate on fruit and vegetables from 27% to 5%. The information was reported by the Hungarian Association of Plant-Based Food Producers and Distributors (NÉGYOSZ) following discussions with the government.

The government is also considering applying the reduced 5% VAT rate to legumes, such as beans, lentils and peas, at a later stage.

The proposal is important because Hungary’s general VAT rate is 27%, the highest standard VAT rate in the European Union.

However, the reported reduction should currently be treated as a planned VAT change, not yet as an effective legal requirement.

The Hungarian Association of Plant-Based Food Producers and Distributors (NÉGYOSZ) has supported a lower VAT rate for fruit and vegetables for several years. The organisation argues that lower taxation could make healthier and plant-based food more affordable and support the development of Hungary’s plant-based food sector.

The VAT proposal is part of a broader discussion about Hungary’s food policy. The Hungarian Association of Plant-Based Food Producers and Distributors is also encouraging the government to develop a Sustainable Food Strategy, using Denmark’s national plant-based food strategy as an example.

If the proposal becomes law, qualifying fruit and vegetable sales that are currently subject to 27% VAT would instead be taxed at 5% VAT.

This would directly affect businesses that sell these products, including:

• supermarkets and other retailers,
• grocery and food stores,
• fruit and vegetable sellers,
• wholesalers and distributors,
• food producers,
• e-commerce businesses selling qualifying food products, and
• accounting, Enterprise Resource Planning (ERP) and Point of Sale (POS) software providers supporting these businesses.

The main implementation issue would be the correct VAT classification of products.

Businesses would have to identify exactly which products qualify for the reduced rate. This will depend on the final legislation and the product categories or customs classifications included in it.

For retailers, the change could require updates to the Point of Sale (POS) system and product database.

Products affected by the change would need to be reassigned from the current VAT rate to the new 5% rate from the legally defined effective date.

Retailers may therefore need to update:

• VAT rates assigned to individual products,
• product master data,
• price calculations,
• receipts and invoices,
• VAT reporting,
• accounting mappings, and

interfaces between POS, accounting and Enterprise Resource Planning systems.

Special attention would be required where similar products have different VAT treatment. Retailers should therefore not simply change the tax rate for all food products.

What should businesses do?

Retailers and food businesses: Do not change VAT rates yet. Monitor the publication of the legislation and identify fruit and vegetable products that could be affected.

POS, accounting and Enterprise Resource Planning software providers: Prepare for a possible VAT rate change from 27% to 5% and ensure systems can update tax rates at product level from the official effective date.

Tax and compliance teams: Monitor the final legislation for the effective date, exact product scope and whether legumes are included. Confirm the applicable product classifications before implementing any system changes.

Retail pricing teams: Assess how a reduction from 27% to 5% VAT could affect gross selling prices, but wait for the final legal rules before applying changes.

This article is based on information reported by the Vegconomist. Source

Ivana Picajkić, Medior Legal Consultant at Fiscal Solutions

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