In six months' time, the VAT rate will increase from 22 percent to 24 percent.

Retailers believe Estonia should consider introducing a VAT exemption on food products. This is already standard in most other European countries and the UK.

"Finland raised its VAT to 25.5 percent this year, but food products were still kept at 14 percent. The reason is that, despite tax increases affecting consumers, food should be available to every family at a reasonable price," said Rainer Rohtler, head of supermarket chain Coop.

Rohtla said if VAT was lowered to 13 percent on vegetables, meat, and dairy products it would cost the state around €40 million less in additional revenue. But, at the same time, it would support Estonian producers and improve the purchasing power of families struggling the most.

However, Minister of Finance Jürgen Ligi (Reform) believes wealthier consumers and retailers would benefit most from the change.

"They essentially capture tax revenue, and in the end, food prices either do not decrease at all or drop only to the extent that the state covers the difference with hundreds of millions from the budget. These hundreds of millions do not exist," he said.

The minister added the proposal is entirely cynical, as retailers' profit margins have grown, yet they are now seeking concessions from the state in a difficult situation.

Rohtla disagreed: "Profit margins for retail companies in Estonia are among the lowest. Net profitability has remained around two percent over the years."

Although food prices in Estonia have risen significantly faster than the EU average, Bank of Estonia Economist Kaspar Oja stated that these differences cannot be explained solely by tax changes. A lower tax rate does not necessarily mean lower prices.

"Looking at other countries, there have been cases where prices have indeed decreased, but our experience has been mixed. We have seen instances in Estonia where tax changes, such as alcohol excise duties, did not directly correlate with price changes," Oja said.

Minister of Regional Affairs and Agriculture Piret Hartman (SDE) said the idea should be discussed.

"We have sat down with both businesses and retail chains. They have all indicated that if VAT changes were implemented, they would face strong pressure to lower prices, making it impossible for prices not to drop. However, these are precisely the aspects that need to be discussed and analyzed," Hartman said.

She said lowering VAT on food does not necessarily result in a massive loss for the state budget, as people would spend the saved money elsewhere.

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