“Once you have started, it is hard to stop!” That is one way to describe the latest developments in value-added tax (VAT) policy in Sweden. Most recently, the government issued terms of reference for an inquiry into differentiated VAT on foodstuffs — that is, different VAT rates for different types of food with essential foodstuffs being subject to a lower rate.
By way of background, the Swedish tax system underwent a comprehensive reform in 1990/91, commonly referred to as “the tax reform of the century”. In broad terms, the reform broadened tax bases, removed deductions and exemptions, and lowered many statutory tax rates, especially on earned income.
As part of that reform, VAT was expanded to cover more goods and services that were not taxed before, and the vast majority became subject to a uniform rate of 25 percent.
The first major departure came a few years later, when a reduced VAT rate of 12 percent was introduced on food. Since then, other reduced rates have been implemented. For example, domestic passenger transport, cultural activities and media are now taxed at 12 or 6 percent.
These measures led to debates about how adjacent goods and services should be treated and where exactly the line should be drawn. For example, VAT on hotel and restaurant services was lowered after an intense lobbying campaign. A long series of special reductions has since been introduced, on everything from ski-lift rides to guided nature tours.
A fiscal cost of nearly 120 billion SEK
Despite the many deviations from the standard tax rate, VAT still accounts for just over 21 percent of Sweden’s total tax revenues in 2026, i.e. SEK 602 billion. The fiscal cost of these measures — the difference between the standard 25 percent and the different preferential tax rates — amount to nearly SEK 120 billion.
The latest development is that VAT on foodstuffs has been temporarily lowered further, from 12 to 6 percent, from 1 April 2026 to 31 December 2027. As is often the case with these types of tax provisions, there is a risk that temporary measures will become permanent. Some commentators argue that the new proposal to introduce lower VAT on “essential foodstuffs” should be seen as the government setting the scene to avoid fully restoring the previous 12 percent rate.
The idea of steering or supporting choices through different tax rates on different types of food is certainly not new. Several parties and organizations have put forward proposals to steer and support people’s eating habits through different VAT rates, e.g. unhealthy and healthy foods, organic and climate-smart products, or basic staples and luxurious items. To my knowledge, this is the first time anyone has proposed distinguishing between “essential foodstuffs” and other grub in Sweden.
The cumbersome task of defining what is “essential”
The issue around differentiated VAT is a serious one and yet, it can quickly get almost satirical.
The most recent change to the VAT took effect on 1 July 2026, when, after many years of campaigning, VAT on admission to dancing events was reduced. The reform was primarily intended to benefit dansband, a Swedish music genre in which bands perform dance-oriented popular music for social partner dancing.
This is what I recently wrote about the VAT treatment of these events:
“In one sense, the proposal is reasonable. Dance and musical performances that people watch are subject to six percent VAT, as is dance practiced as exercise. Dancing to dansband, where one may both watch the band and dance until one is drenched in sweat, has fallen somewhere between that and 25 percent. But believe me, new demands for lower VAT rates based on new boundary-drawing exercises will soon follow. For example, when people are enjoying themselves without actually dancing.”
Coming back to the treatment of different rates on foodstuffs, the joke will probably fall flat. Take the grocery store employee who, in the future, will be tasked with classifying every item according to how “particularly essential” its ingredients are deemed to be. Not to mention how much time and energy will be spent on political discussions about what is essential (particularly so) and what is not: Falukorv (a traditional Swedish sausage frequently used in Swedish political debate)? Yes, but not if it contains a lot of beef, because that generates more CO2 emissions. Potatoes? Yes… Rapeseed oil? Yes… but what if the producer has used both and made French fries?
As the election on 13 September 2026 draws closer, more and more politicians seem to come down with election fever.
Politicians should rather pause and think things through. After all, policies should be designed based on evidence and conclusions drawn from proven experiences. Differentiated VAT rates often generate costs that outweigh their benefits, and they are frequently an ineffective way to support households with limited financial resources.
Why not consider a review of the broader tax system instead?