Spanish supermarkets want VAT reduction to limit price increases

by Lorraine Williamson
supermarkets ask for VAT reduction
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MADRID – Several united supermarkets in Spain are asking the government to take urgent measures to mitigate the effects of price increases and prevent possible future shortages by introducing a reduction in VAT. 

Supermarkets ask for VAT reduction on food to keep prices in check. Asedas, the group of Mercadona, Lidl, and Dia, proposes to the government that the sector can negotiate its electricity contracts as major consumers to reduce costs 

See also: Huge price increase at Mercadona for some products 

This is in response to rising energy, fuel, and raw material prices that have shaken up the food sector. The request to the government was drawn up by the business association Asedas.  This association unites supermarkets such as Mercadona, Lidl, Dia, SalvaMas, and Consum. 

VAT reduction 

One of the proposals is to lower the VAT on food and give benefits to companies in the sector to negotiate contracts with electricity companies. The sector is in “an unprecedented situation, with record price increases for commodities”. 

On the one hand, companies fear that the price increase will affect household consumption. It fell by 3.7% every quarter between January and March, according to INE. Indirectly, those price increases will weigh on their bottom line. 

Companies are playing with their margins to pass on increases as small as possible to avoid losing customers. However, this strategy is becoming increasingly limited. 

So far headline inflation has risen above food prices (9.8% versus 6.9% in March, last month with full data).  But the increases are continuing. 

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Other proposed measures 

To alleviate the situation, Asedas proposes several measures in the areas of energy, transport, and taxes. The association, which brings together 20 companies with a total of 19,000 stores and 282,600 employees, is calling for a VAT reduction on food and consumer products to help control prices. 

It also calls for a moratorium on special taxes such as fluorinated gases and the new tax on single-use plastics. 

Food sector ‘essential’ 

The designation of the food sector as ‘essential’, as happened during the pandemic, is another request. For practical reasons, a legal framework would be needed that would enable companies to take the necessary commercial measures to guarantee supplies in situations of risk of shortages. 

Furthermore, a measure to that effect has already been taken in the royal decree approved by the government in April. Consequently, stores were allowed to ration the sale of products in emergencies, as happened with sunflower oil. 

Transport guarantee 

But there are also new measures on the table, such as guaranteeing transport for all links in the food chain during strikes or lockouts, such as the one held by the transport sector a few weeks ago, which caused serious supply problems. Establishing minimum service requirements during strikes could prevent this. 

Regarding energy, Asedas advocates that the new pricing system be applied as soon as possible, which breaks down the effect of gas from other sources. This has already been approved by the government but no details have yet been given on how to implement the measure. 

Asedas also wants the concept of “essential large-scale consumer” to be developed. This should give access to more flexible and cheaper contracts with electricity companies. 

War intensified the process of price increases 

The escalation in inflation started to be noticeable in September and accelerated towards the end of 2021. Moreover, the war in Ukraine, which produces important grains for the Spanish economy, intensified the process. In March, a shortage of sunflower oil began to develop (more than 60% of what Spain imports comes from the area) and the transport strike weeks later worsened the situation. 

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