VAT rebate on food products in Spain ends in January

by Lorraine Williamson
VAT rebate

The extension of the VAT rebate on basic foodstuffs from July contains a novelty compared to previous extensions of the measure. During the six additional months that the government extends the measure, VAT on food products with greatly reduced VAT (now taxed at 0%) and those with reduced rate (now at 5%) will gradually increase. On 1 January 2025, they will be 4% and 10% respectively.

The Spanish Council of Ministers has approved the extension, but with nuances. During the months that the measure remains in force, VAT will gradually increase in order to return to the normal level for the groups mentioned at the end of the measure.

Last extension of VAT rebate for basic foodstuffs

The  final extension of the VAT discount on basic foodstuffs is likely to take effect on 1 July. The Spanish government started this in January 2023 to relieve consumers’ wallets in a scenario of high inflation. Specifically, from then on, the discount applied to milk, bread, eggs and cheese, and fruit, legumes, cereals and vegetables that have the status of natural products (components of the super-reduced VAT group) and to pasta and seed oils (products with reduced VAT).

As detailed in the press conference after the interministerial meeting, products with the greatly reduced rate will remain 0% until September 30. And be taxed at 2% until December 31. In the case of products with a reduced VAT rate, it will remain 5% until September 30 and will increase to 7.5% from October 1 until the end of the year.

What happens to olive oil?

Last week, the Spanish government announced the reduction of VAT on olive oil to 0%. This product was included in the list of foods with the greatly reduced rate. In other words, once the government ends the support, the “liquid gold” will be subject to the 4% VAT rate forever. An attempt by the government to revive a market that has been in the doldrums due to the price increase of the past year.

Inflation falling

Although inflation is falling, the Spanish Ministry of Economy justifies the extension of the measure. Arguing that food prices are still “significantly higher” than general inflation.

According to the latest CPI data updated by INE, food prices rose by 4.4% in May. And although there has been a gradual moderation and the levels of more than 10% for several months are now behind us, the government still sees a sufficiently high increase in the shopping basket to extend the measure by several months.

Check

Finally, the request of the Minister of Employment, Yolanda Díaz, was rejected. It should ensure that the large distributors transfer the abolition of the tax to the shelves of the supermarkets. “The regulatory bodies, including the CNMC, have confirmed that this reduction has been passed on in the final prices,” said the minister, María Jesús Montero, who added that she will continue to monitor the market.

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