The reduced VAT rate for pesticides and fertilisers aims to make pesticides and fertilisers more affordable for farmers and to help increase food production. VAT legislation in Slovenia was introduced in 1999 and amended in 2007. The current VAT rate is 22%, but it is reduced to 9.5% for pesticides and fertilisers. This subsidy primarily benefits smaller farms, which represent most commercial farms in Slovenia. Similar subsidies can be found in Belgium, Cyprus, France, Poland, Portugal, Romania and Spain. Other countries, like Austria, Germany, Italy, Ireland and Luxembourg, have lower VAT rates only for fertilisers.
The budget impact of the reduced VAT rate was EUR 5.4 million in 2020. If the subsidy were removed, the cost of pesticides and fertilisers would increase by 11.5%, and their use would decrease by 3.5%. This removal would increase overall farming costs by 1% and disproportionately impact smaller farms more than larger farms.
The environmental impacts of this subsidy include increased runoff, water pollution and greenhouse gas emissions because the reduced VAT rates encourage the use of more pesticides and fertilisers. Greenhouse gas emissions would decrease by 3.5% if the subsidy were abolished.
Even though lower VAT rates negatively impact the environment and there is an action plan proposed by the European Commission to reduce pesticide pollution, pesticide usage in Slovenia is higher than the European average. Slovenia currently does not have any plan to reform or abolish the reduced VAT rate. To help farmers transition if the reduced VAT rate is reformed, it is suggested to increase the VAT rate gradually each year, subsidise agricultural monitoring methods and provide financial support to farmers independently of pesticide and fertiliser use. Another option for a successful reform is to keep lower VAT rates on environmentally friendly pesticides and fertilisers, which also helps to promote organic farming methods.
More information on the reduced VAT rate for pesticides and fertilisers and other candidates for reform in Slovenia and other Member States can be found in the country case studies and factsheets compilation.