Starting from July 1, 2025, Estonia’s VAT rate will increase from 22% to 24%.

This is already the second increase within a short period — the previous VAT hike took place only at the beginning of 2024. But what does this new rise actually mean? Will grocery and service prices go up by just two percent, or should we expect a much stronger price surge?

The increase may exceed the tax rate itself

Economists are divided. Some believe that prices will rise only in proportion to the tax hike. Others warn that retailers may take advantage of the situation and raise prices more than necessary. According to experts, it would be unwise for businesses to miss an opportunity to boost profit margins.

In fact, we already saw in early 2024 that a 2% VAT increase resulted in a significantly larger price jump — for example, food prices rose by 3%, and overall inflation surpassed 4%. A similar pattern is likely to repeat this July.

Impact across different sectors

Last time, the hardest-hit areas were food, fuel, restaurants, and telecommunications. For instance, telecom prices rose by more than 10%. This suggests that the VAT increase can serve as a convenient “excuse” for price hikes that may exceed what's economically justified.

The effects varied by sector — the most noticeable price increases were seen in services and essential goods. Additionally, many businesses raised their prices even before the official tax change, citing “technical preparations” as a reason.