Spanish Government May Reduce Tax on Shopping Baskets

The Spanish Government is still working on the next phase of measures to help alleviate the cost-of-living crisis, with an announcement due before the end of the year.

However, sources close to the discussions have said that there are only three options that are really being considered. A one-off payment, reducing IVA on some products, and reaching agreements with large distributors and supermarkets.

Perhaps the most interesting, as it would be far reaching, is the reduction to IVA. Within this plan, some foods that are currently taxed at 21% would be taxed at 10%, and those that are currently taxed at 10% would reduce to 4%. And there is even the possibility that those who are at 4% will be temporarily tax-free.

In Spain, the reduced VAT of 10% is found mainly in fresh products such as meat and fish. These are foods for human or animal nutrition, excluding alcoholic and soft drinks, juices and soft drinks with added sugars or sweeteners (which are at 21%).

At 4%, the super-reduced IVA, are bread, milk, fruits, vegetables, legumes, tubers and cereals. Many of these are staples in any basic grocery basket.

The IVA reduction is one of the demands that, throughout the year, the sector has been claiming with the Spanish Association of Distributors, and Supermarkets (Asedas) at the forefront. Request that gained strength when the second vice president, Yolanda Díaz, tried to convince supermarkets to create a basic shopping basket.

This solution is not unique in Europe since Germany opted for it. Two years ago, in the midst of a pandemic, the German government decided to lower VAT for six months to deal with the difficult situation. Specifically, it applied a temporary VAT reduction from 19% to 16% and from 7% to 5% for the reduced rate that was maintained until December 2020. A measure that affected food.

Hence, the employers of Mercadona, Dia or Lidl take the opportunity to claim this measure that they describe as “successful” in Germany since it allowed inflation to be lowered during the months in which it was applied.

In addition to lowering IVA, the Government is also trying to reach agreements with large companies in the sector. Here, there are various postures or strategies. On the one hand, the PSOE tries to reach agreements with these companies to reduce profit margins and avoid imposing taxes.

On the other hand, in Unidas Podemos they also talk about reaching an understanding so that companies provide an affordable shopping basket with quality products, although with nuances. Those chains that facilitate this basket will have bonuses. But those do not “could see how they are prohibited from distributing dividends as we did at other times of the crisis,” warned Yolanda Díaz last Wednesday.

At the moment, the sector is officially silent until these measures are agreed. However, the most critical voices reject measures such as the 33% tax on profits or the check of between 250 and 500 euro. The latter, in addition, they see as unnecessary since many of the supermarkets offer food aid to vulnerable families in collaboration with associations, NGOs or municipalities throughout Spain.

It is expected that one of the two remaining Council of Ministers to end the year will present the final proposals that will alleviate the pockets of consumers. And that the Consumer Price Index (CPI) fell to 6.8% in November in its annual rate. However, food prices grew by 15.3% in the interannual rate in November, one tenth less than in October.