Spain VAT On The Rise to Handle Deficit

Spanish Prime Minister Mariano Rajoy announced “…he would raise the value-added tax by 3 percentage points to 21 percent as part of a large package of tax hikes and spending cuts aimed at trimming the public budget by 65 billion euros over the next 2-1/2 years.”

Agreements with the European Union have led to commitments for “…tough deficit cutting targets.” Spain was given until 2013 to show results that include a public deficit of 3 percent. Now, “…the EU agreed to give Spain more time, until 2014 instead of 2013,” to reach the 3 percent goal.

Other VAT changes also occurred with the general VAT increase, which impacts “…items such as clothing and cigarettes.”

The VAT “…for the leisure industry, which is at a reduced rate, will increase from eight per cent to 10 per cent (sic), covering accommodation, food and drink at restaurants, hotels and bars, as well as processed food.” The tax for hotel bookings may be added as early as August 1 this year. This rise was met with some criticism as well as relief.

The Spanish Tourism Commission said in a statement, “The tourism sector regrets the government’s lack of sensitivity for a strategic sector that is key to kick-starting and accelerating Spain’s economic recovery.”

“Sean Tipton of ABTA described the move as ‘very short-sighted’.”

However, Bill Allen, managing director of the On Holiday Group, said, “Two per cent is a much more sensible approach. There was a similar increase in Canaries a few weeks back and there the hotels absorbed the increase – we’d expect the same to happen now in Spain.”