ZAGREB, 23 Feb (Hina) – The Finance Ministry will propose amendments to the Value Added Tax Act to extend the application of a reduced 5% VAT rate on energy products until 31 March 2027, the state secretary at the ministry, Tereza Rogić Lugarić, said on Monday.

The measure has proved effective and achieved its objective of maintaining price stability and easing inflationary pressures on prices and their impact on household and business standards, she said.

The reduced 5% VAT rate applies to supplies of natural gas and heating from thermal stations, including related charges, as well as to firewood, pellets, briquettes and woodchips.

The measure is currently due to expire on 31 March, and its extension for another year is now being proposed. Without an extension, the VAT rate on energy products would rise to 13%. The ministry assumes this would affect energy prices and the living standards of citizens and businesses.

Explaining why the reduced rate applies to those specific energy products, Rogić Lugarić said their prices can be calculated precisely, allowing the impact of the lower VAT rate to be monitored.

According to an estimate of the fiscal impact of the extension, the state budget would forgo €47 million in revenue – €35 million from 1 April to 31 December this year and €12 million from 1 January to 31 March next year.

Despite the loss of revenue, the reduced rate has helped maintain stable prices for natural gas and firewood, the state secretary said.