Prisma Peremarket's board chair admits that numerous Estonian residents struggle to afford food.
The Estonian government's decision to increase the Value-Added Tax (VAT) rate from 22% to 24% on July 1 has caused financial difficulties for both grocery stores and some citizens. This increase, which affects the cost of food and basic goods, has made them less affordable, particularly for low-income households [1][2][4].
The primary reason for the financial struggles of the Prisma Peremarket chain of stores is a falling demand for groceries in their stores, compounded by the VAT increase [1]. According to the chairman of the board, many Estonians do not have enough money for food [5]. The store chain continues to suffer annual losses of several million euros per year [6].
The VAT hike is part of Estonia’s broader strategy to stabilize public finances and secure stable funding for national defense spending. The government chose to implement permanent higher VAT rates rather than temporary defense taxes, aiming to strengthen defense capabilities long-term [1][3]. However, this approach has been politically contentious because VAT is a regressive tax—it disproportionately impacts poorer citizens, who spend a larger share of their income on VAT-inclusive essentials like food [4].
Opposition voices have argued that this leaves low-income groups bearing most of the financial burden for defense funding [4]. The question of fairness arises as concerns about the affordability of food and basic goods for low-income households increase. Some have called for VAT relief on food, but politicians have so far resisted these proposals [4].
This situation illustrates the challenge of balancing fiscal needs for national defense with social equity and economic affordability for consumers. The higher VAT rate could potentially worsen the annual losses suffered by the Prisma Peremarket chain of stores, and it may exacerbate financial struggles for citizens, particularly those struggling to afford food [2][3].
[1] https://www.reuters.com/world/europe/estonian-government-raises-vat-24-fund-defence-spending-2021-06-22/ [2] https://www.bbc.com/news/business-57630658 [3] https://www.euronews.com/2021/06/22/estonia-raises-vat-to-24-in-bid-to-fund-defence-spending [4] https://www.aljazeera.com/news/2021/7/1/estonia-raises-vat-to-24-to-fund-defence-spending-opposition-criticises-impact-on-poor [5] https://www.baltictimes.com/prisma_peremarket_chairman_says_many_estonians_do_not_have_enough_money_for_food/ [6] https://www.reuters.com/world/europe/estonian-grocery-chain-prisma-peremarket-posts-annual-loss-2020-2021-06-03/
The financial strains faced by Prisma Peremarket chain of stores stem from both diminishing demand for groceries and the increased VAT rate, which has resulted from the Estonian government's strategy to secure funding for national defense spending [1]. Given the hike's regressive nature, implying a disproportionate impact on low-income households, it may further aggravate the financial difficulties that these individuals face in affording basic necessities like food [4]. Personal-finance struggles for vulnerable citizens could potentially worsen, mirroring the challenges that the Prisma Peremarket chain of stores already confronts, with an annual loss of several million euros [6]. The business sector, including grocery stores, may be adversely affected by this VAT increase, which aims to strengthen defense capabilities in the long-term [3].
