Cheaper Olive Oil? Portugal to Reinstate 6% VAT on Pressing

Families planning their winter stock of olive oil may finally breathe easier. The draft State Budget for 2026 restores the 6 % VAT on the pressing of olives, reversing last year’s controversial leap to 23 %, and industry voices insist the decision should ripple from the lagares of Alentejo to the checkout aisle.

Why a tax tweak on crushed olives resonates at Portuguese dinner tables

For most consumers the price tag on a litre of extra-virgin olive oil matters as much as the cost of bread or milk. Portugal’s cabinet argues that a lighter fiscal burden on the transformation stage—where raw olives become the liquid often called “green gold”—will trim production costs and cushion retail prices. Analysts note that the shift lands as food inflation, while easing, still gnaws at household budgets: every percentage-point shaved off costs can slow the upward march of shelf prices.

From European rulebook to national U-turn

The higher VAT sprang from the March 2025 transposition of a EU directive that re-categorised the service of pressing olives as non-essential, throwing it into the top band. Within weeks, cooperatives in Beja, policy experts in Lisbon and MPs across party lines were inundated with complaints. The Confederação dos Agricultores de Portugal branded the 23 % rate “unsustainable”, pointing out that the finished product still paid only 6 %. The centre-right administration of Luís Montenegro has now placed the reduced rate back into List I of the VAT Code, effective 01 January 2026, arguing it restores fiscal coherence and competitiveness.

Counting the euros in the olive belt

Alentejo, responsible for roughly 82 % of national output, illustrates the stakes. A single harvest sees millions of kilos delivered to regional mills; under the 23 % regime, owners reported cash-flow squeezes because VAT is paid upfront long before refunds materialise. Olivum, representing 70 % of growers and mills, expects the rollback to free capital for irrigation upgrades and wage rises just as climate volatility forces expensive mitigation. On the consumer side, supermarkets are already negotiating next season’s contracts in anticipation of a slimmer tax bill on each tonne processed.

Will supermarket prices really drop?

Economists caution against linear equations. VAT on production is reclaimable, so the full 17-point cut never translates directly into the retail tag. Yet transport, energy and packaging together account for a rising share of costs; relieving one pressure point can slow overall hikes. Several retailers tell us privately they aim to keep prices flat through Easter 2026—an implicit acknowledgment that a lower fiscal drag gives them room to absorb other increases. Should the global commodity cycle stabilise, shoppers could see modest markdowns by late spring.

Budget arithmetic and the hunt for offsetting revenue

The Finance Ministry has not published a line-item estimate of the revenue sacrificed, calling the move “fiscally neutral” within an envelope that already projects an extra €2.8 B in tax income next year. Higher takes from fuel duties, a continuing surcharge on high-emission vehicles and sturdier tobacco levies are flagged as buffers, while personal income-tax cuts for the middle class are kept intact. Opposition parties on the left demand clarity on whether the olive-oil measure will crowd out planned boosts for healthcare staffing, but the bill’s drafters insist the net effect is marginal.

Mediterranean chessboard: how Portugal now lines up with its neighbours

Competitive anxieties have also driven the policy change. In Spain and Italy the pressing of olives already benefits from 4 % VAT, while Madeira and the Azores apply 4 % locally; Greece sits at 13 % for most food basics. Although exporters reclaim VAT at customs, producers argue that lower domestic rates ease cash-flow and signal government backing. Aligning Portugal more closely with its Iberian peers, they contend, helps secure contracts with gastronomy brands that prize supply-chain stability.

What to watch after 1 January

Once the law clears parliament—debate starts next month—mills will reconfigure pricing sheets and software to the 6 % rate. Tax lawyers warn of a brief transition period where invoices dated 2025 but settled in 2026 might create accounting wrinkles. Meanwhile, growers eye the autumn harvest, hopeful that a friendlier fiscal climate, ample rain forecasts and robust demand from the United States will combine for the most profitable campaign since 2021.