The latest addition to the list of preferential VAT goods and services that benefit from a 5% VAT rate was introduced on October 14 2016, and is effective from the same date. It prescribes the application of the reduced VAT rate to the supply of pellet fuel, pellet boilers and pellet stoves.
The preferential VAT rate is commonly applied to human food products, medicines and medical equipment, publications, seeds and planting material used in agriculture, other agricultural products such as fertilisers, foils and machinery, and software and hardware products, among others.
The decision to add pellet products to the list of preferential VAT goods was first announced in May 2016, along with the announced subsidisation of pellet stove purchases. The aim of both measures is to curb the still-common wood heating in the country. Depending on the methodology, it is estimated that anywhere between 35% and 80% of households in the country are still using wood as the primary heating element.
One obstacle that still needs to be removed is the delayed implementation of the application of the new VAT rate to imports of pellet products. As the customs authorities are still expecting the Ministry of Finance to issue the rulebook in regards to the amendment in order for them to apply the new rate, the previously valid standard rate of 18% continues to apply to the import of such products while their domestic resale must be done with the rate of 5%, thus creating a financially disadvantageous position for traders.
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