Practical guide on the VAT increase

1. What are the sectors and products most affected by the VAT increase?

The OCU predicts a contraction in consumption because in this situation “every time a product goes up, the consumer stops consuming.” However, it will affect the sectors unequally. Among the most affected will be those related to leisure and entertainment, such as cinema and theater, in which VAT will go from 8% to 21%, as will also happen in chains of hairdressers, aesthetics, discos and funeral services.

That of bookstores and stationery stores will be another affected sector because, although VAT on textbooks will continue to be taxed at the super-reduced rate, that of school supplies rises from 4 to 21% and that will translate into 14 euros more on average, according to estimates of the organization.

The second group of products that are most affected are those that are taxed at a reduced rate of 8% to 10%, among which are women’s hygiene products, bottled water, glasses or contact lenses and all activities linked to tourism, such as restaurants, bars and cafes.

Other sectors, however, have more options to maintain the percentage of consumption, such as food, especially when there are products, those of first necessity, such as bread or milk, which are maintained with super-reduced VAT.

2. Retail, the most affected

The Spanish Confederation of Commerce (CEC) estimates that there are at least 75,000 establishments at serious risk of disappearing. “It is going to be catastrophic for our sector and, without a doubt, it is going to fully affect consumption. We have decapitalized ourselves, taken on debt and have adjusted our commercial margins to keep our establishments open and our workers”, emphasizes García-Izquierdo, president of the CEC.

Although the impact will not be as strong, the concern among large stores and supermarket chains is also notorious. The Spanish Association of Supermarkets (Aces) has already warned that the increase will cause a decrease in consumption and Anged, the Association of Large Distribution Companies, which defends the interests of companies such as El Corte Inglés, Carrefour, Eroski, Alcampo or Ikea, It also warns of a drop in sales, although it trusts that the liberalization of schedules will allow, at least, to compensate it in part.

3. Will retailers pass on the VAT increase to consumers?

In the retail sector, prices will not rise immediately, because the entrepreneur usually opts for a commercial policy of lowering them, reducing their profit margins and assuming part of the tax increase so that it does not fall entirely on the consumer.

The OCU has verified it on other occasions: “in the first months, there is no immediate increase; the increase is staggered and after a year it is fully transferred to consumers”.

Among the companies that will not apply the increase are some textiles such as Inditex, Cortefiel, Mango or Benetton and other food companies such as Mercadona, El Árbol, La Sirena, Eroski or Lidl.

The department store giant El Corte Inglés does not want to apply the VAT increase either, although given the heterogeneity of the offer, in some cases it will fully or partially assume the tax increase and in others the change will affect the sale price.

4. Export as solution

The rise in VAT will not affect companies that have a way to export their products or services, since VAT on exports is paid at the place of destination. The opposite case will occur in imports, which will be held back by the increase in tax rates.

The rise in VAT will not affect companies that have a way to export their products or services, since VAT on exports is paid at the place of destination. The opposite case will occur in imports, which will be held back by the increase in tax rates.

5. How much will the VAT increase cost the average worker?

The increase in VAT, which comes into force this Saturday, will cost the average worker 369 euros a year, who will pay 20.79 percent more for this tax, according to a study prepared by the ‘think tank Civismo’, which indicates that citizens they will have to work six more days to comply with the Treasury.

In this sense, ‘think tank Civismo’ highlights that the rise in VAT will affect workers differently depending on their income level. Thus, according to the study, mileuristas “the VAT increase will cost them 224 euros; while those with an income level of 60,000 euros will pay 833 euros more”.

6. What impact will it have on the evolution of prices?

The rise in VAT, to the extent that it affects almost all the products in the shopping basket, will cause an upturn in inflation. Prices have already increased in July to 2.2% due to the application of the pharmaceutical co-payment (the price has not risen, but the part of the cost assumed by citizens has) and the large study services foresee that they will reach 3% at the end of year.

7. How can the consumer avoid the VAT increase?

But consumers, as indicated by the OCU spokesman Enrique García, can somehow “get around” this effect of the rise by comparing prices and not getting carried away by misleading advertising. “Watch out for her; a merchant may say that he does not raise VAT, but the price level of that establishment is higher than that of another that does apply it and has cheaper prices, ”he points out.

We must search and choose “the best product at the best possible price”, without letting an offer blind us and lead us to buy the entire shopping basket in the same supermarket, because the rest of the products may be more expensive.

“Be careful with the offers, with their fine print; many times it is worse to buy in an establishment with a certain offer than to buy in another that does not have it but does have low prices throughout the year”, warns García. “The differences between establishments are notable and significant savings are achieved by buying from the cheapest. You have to look for the price difference”, emphasizes the spokesman for consumers.

8. Why has VAT been raised?

Behind the increase in VAT is pressure from Brussels. The European Commission has always considered that Spain maintains low indirect taxation and has recommended raising VAT taxation and lowering direct taxation, such as personal income tax or social security contributions. The bank bailout and the more than likely help that the State will have to ask the community authorities in September has forced it to assume the Brussels thesis. The general rate is finally set at 21%. Despite the increase of three points, Spain is still in the middle range between the 27 countries of the European Union, although above the large nations of the euro zone such as France (19.6%) or Germany (19%).