VAT rates increase in Spain.

As part of the austerity package needed to bring the Spanish economy and debt under control the government has increased the rates of VAT charged on goods and services with effect from the 1st September 2012.

Prior to this date Spain had three rates of VAT, 4%, 8% and 18% with the various category of goods and services subject to one of these rates.

Graphic by Laverdad.es http://www.laverdad.es/RC/201208/31/Media/iva1.jpg

From the 1st September the 8% rate has been increased by 2 points to 10% and the 18% rate has been increased by a greater amount to 21%. the lowest rate of 4% on essential goods has not been increased although some items charged at this rate have been reclassified to a higher rate group.

In the case of school supplies; textbooks, albums, sheet music, maps and sketchbooks, remain taxed at super reduced VAT of 4%; whilst pens, diaries, cards, craft pads, compasses, colored paper and plasticine and similar items are now classed as office supplies and are subject to a 17% increase in VAT to 21%.

There has also been a recatagorisation of items in the middle rate to the top rate, an increase from 8% to 21%. These include entry to theaters, cinemas, circuses and other shows and some services, such as hairdressing and funeral services. The same goes for some cosmetics and personal care products.

The increases in the rates are the greatest rise in VAT rates in the history of Spain and are viewed with suspicion by many sectors of the economy. The Consumers and Users Organization has estimated the increase for consumers at 470 euros per year.

The Prime Minister of Spain, Mariano Rajoy, has acknowledged that the VAT hike is a painfull measure and a sacrifice that all citizens have to make because it will help the government to finance public services. Having explained that his government has taken this action because it is an essential step to tackle the current crises and falling government revenues. He has been reported as saying "I realize that is a sacrifice that comes at a very difficult time," and "nobody has the slightest doubt" that his government would not have raised VAT if it had not been necessary. Rajoy has emphasised that the tax increases are "exceptional instruments" instigated to deal with an exceptional set of circumstances that should never happen again and that VAT will return to the previous situation when circumstances permit.

The Prime Minister gave his assurances that if Spain continues on this path it will begin to regain confidence as a country, showing that it is "serious and dutiful", enabling cheaper financing and attract investment to return rapidly to grow and create jobs.

It is very easy for him to offer this long term hypothesis as justification for the increases in VAT but it is the unemployed, the low income workers and the pensioners who will be those who suffer the most in the present time. They will suffer because of the failings of the monied elite.

How much closer will the state of the Spanish economy get to that of Greece? How much longer will it be before the citizens of Spain escalate their demonstrations against the policies of the rightwing Partido Popular government led by Mariano Rajoy?

http://www.europapress.es/economia/noticia-hoy-entra-vigor-subida-iva-20120901081120.html
http://www.laverdad.es/alicante/rc/20120901/economia/vivir-desde-manana-caro-201208310051.html
http://www.europapress.es/nacional/noticia-rajoy-reconoce-subida-iva-dolorosa-no-caera-saco-roto-20120901141901.html

Update: 28.09.2012
VAT increase causes inflation to jump to 3.5 percent in September.