VAT drops, but not all foods in Czechia have become cheaper – why?

Since the start of January, major supermarket chains in Czechia have cut their average overall prices by 3 percent owing to the change in the country's value-added tax (VAT) rate for food, which has been reduced. However, not all goods have dropped in price, with some products – such as olive oil and soft drinks – costing more.

Czech media outlet Seznam Zprávy analyzed the prices of four major retail chains – Tesco, Albert, Lidl, and Penny Market – in November 2023 (before the VAT change) and last week to see the differences in prices. Since the start of this year, the VAT on food has dropped from 15 to 12 percent.

Seznam reports that, ultimately, prices on average have become cheaper. But not by much – and not all products. The shift in VAT made the cheapest products cheaper by tens of pennies (hellers). Products typically costing in the hundreds of crowns (such as meat) have declined “by a few crowns.” For example, 1000 grams of Expresso Magnifico coffee beans at Lidl cost CZK 299.9 two months ago, now they are priced at CZK 291.9.

The report also finds that some chains have discounted products more than they technically “needed to” – select foods are now priced as though the VAT rate was around 9 percent.

In December, Lidl had promised that “hundreds of basic foods” would be cheaper – as if the tax rate were 9 percent. Indeed, prices of some sausages, eggs, cheese, pastries, and flour have all dropped by several crowns, with some declines exceeding 10 percent. 

Lidl has the largest maneuvering space for similar strategies and price cuts in supermarket chains’ attempts to attract customers. According to a new study by Mendel University and the Office for the Protection of Competition, it has the largest sales margin of the eight largest chains, as well as the highest profits.

At the end of 2023, the Czech Trade and Tourism Association warned the public that suppliers increasing prices to compensate for the VAT ranges could hurt the consumer. This, however, has largely not come true.

"During December and January, several suppliers already increased their prices, as they warned. But we do our best to ensure that the final prices for customers remain as low as possible," Penny Market spokesman Tomáš Kubík told Seznam. 

Earlier this month, representatives from various supermarket chains confirmed that they fully reflected the reduced VAT rate in the prices of over 8,500 products. Speaking on Czech Television, Czech Minister of Agriculture Marek Výborný said that it was “too early” to see any tangible and large decrease and food prices at present, but told consumers that this would happen in the coming months. 

Výborný has also mooted the idea of an official price-comparison tool that would display and contrast the prices of all major supermarket chains in Czechia. However, no concrete plans for its introduction have been announced, and supermarkets have shied away from the proposal.

Not everything, however, has become cheaper – some items have actually gone up in price. Olive oil is an example, though its increase cannot solely be attributed to internal factors. A record-hot summer in many parts of the Mediterranean hampered growth, causing a surge in price. In almost all major supermarket chains, olive oil has increased in price by “tens of crowns,” Seznam writes.

For example, the price of Ondoliva Selection Extra Virgin Oil (750 mil) in Albert has risen from CZK 286 in November to CZK 389 today. At the same time, the price of Italiamo Extra Virgin Olive Oil (500 ml) in Lidl increased from CZK 189.9 to CZK 219.

This has also caused butter to become more expensive. The price of Boni brand butter in Penny Market has increased from CZK 39.9 to CZK 42.50 in the past two months.

Although foodstuffs enjoy a lower VAT rate, the opposite is true for non-alcoholic beverages. The VAT increase from 15 to 21 percent has seen various soft drinks go up in price, Seznam writes. The price of Solevita apple juice in Lidl increased from CZK 24.9 to CZK 29.9, for example.

The decline in prices of food will come as a relief to the average consumer in Czechia, who has seen huge jumps in costs in the last two years – although with a mere 3-percent average increase (and some products becoming pricier), the public may not be fully satisfied.

An official report on inflation that the Czech Statistical Office will release (around mid-February) will give consumers better insight into exactly how much the new VAT system has altered food and drink prices.