Reduction of VAT on olive oil lowers price per litre by 50 cents

by admin
VAT on olive oil
ASSSA

The cost of shopping has risen in Spain. The energy crisis following the Russian invasion of Ukraine has driven prices even higher. To somewhat ease the burden on households, the Spanish government has implemented measures such as a temporary reduction in VAT on basic products like olive oil. Despite these efforts, the price of olive oil has surged by more than 174% in just over three years.

In February 2021, a litre bottle of store-brand extra virgin olive oil cost €3.45. Now, that same bottle is priced at €9.46, reflecting a more than 174% increase. This stark rise highlights what many households have felt in their wallets over the past few months: the term ‘liquid gold’ not only refers to the quality of olive oil but also to its high price.

Temporary VAT reduction as a solution

The Spanish government has announced a temporary reduction of VAT on olive oil starting in July 2024. This is expected to lower the price per litre by approximately 50 cents. Last Tuesday, the Council of Ministers approved the reduction to 0%. This is effective from 1st July, sources from the Ministry of Finance told Europa Press. In 2023, the VAT had already been reduced to 5% from the usual 10%, along with that of pasta. According to Enrique García, spokesperson for the Organization of Consumers and Users (OCU), this measure is essential. However, he also emphasised that this reduction is insufficient if VAT on meat and fish is not also addressed.

Price drop and increased demand

Over the past year, olive oil prices have already dropped by 5%. From 1st July, the price decline will continue with the additional VAT reduction from 5%. This cumulative decrease is expected to save consumers around one euro per litre.

The sector’s response to the measure

Pedro Barato, president of the Spanish Interprofessional Organisation for Olive Oil, welcomes the measure. However, he regrets that it was not implemented sooner. He highlights that the measure will benefit both consumers and producers.

Cristóbal Cano of the Union of Small Farmers and Ranchers (UPA) is positive about the reduction but urges the government to strictly enforce it to ensure that the price reduction actually reaches consumers. He warns that profit margins often remain with distributors rather than benefiting the end-users.

Criticism

The consumer organisation Facua criticised the measure, accusing the government of masking their inaction against illegal price hikes in the olive oil sector. They argue that the new tax reduction will only lead to new price increases or artificial inflation of small price decreases that some brands implement.

Economic impact

The economic impact of the measure remains a subject of debate. According to Rosa Duce, chief economist at Deutsche Bank, justifying this VAT reduction in Brussels could be challenging given the strong consumption currently supporting the Spanish economy.

Carlos Victoria, economist and professor at the University of Comillas-ICADE, points out two concerns: the high cost of the measure to the state treasury and whether the measure sufficiently redistributes benefits. The Independent Authority for Fiscal Responsibility (AIReF) estimates that the VAT reduction on food in 2024 will cost the state €1.072 billion, a significant amount ultimately borne by all citizens, regardless of their income.

Baycrest Wealth

You may also like