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Customers shopping in a supermarket in Spain (file image). R.C.
Olive oil and staple foods in Spain will have 0% IVA sales tax until 30 September
Economy

Olive oil and staple foods in Spain will have 0% IVA sales tax until 30 September

In addition to the extension of the inflation-relief measure, the Spanish government has also approved the increase in the personal income tax threshold

Amparo Estrada

Madrid

Wednesday, 26 June 2024, 11:52

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Spain will exempt olive oil from paying the sales tax (IVA) as part of the government's broader inflation-relief package.

The reduction of IVA on olive oil from 5% to 0% will come into effect from 1 July, meanwhile the government approved to extend its 0% tax reduction on basic foods, such as milk, bread, eggs, cheese, and fruit, pulses, tubers, cereals and vegetables that are natural products, will continue to be zero-rated until 30 September. From 1 October all these foods will be subject to 2% IVA until 31 December.

The government also approved extending the IVA reduction from 10% to 5% for pasta and seed oils. On 1 October the IVA rate for these products will be reduced to 7.5% until 31 December.

Finance minister María Jesús Montero said the government expects inflation to stabilise in the last quarter of the year and the IVA tax reduction measures to be phased out next year. From 1 January, olive oil and staple foods will return to the super-reduced IVA rate of 4%, while pasta and seed oils will be subject to the 10% rate.

In 2023, the government reduced IVA on olive oil from 10% to 5% following the sharp rise in its price, which has tripled since 2021. It has now decided to lower it to 0% and has incorporated it, now permanently, into the group of basic staple products.

The decision to opt for a gradual increase in IVA over the next six months in order to return to normal rates is due to the European Commission's demand for a gradual withdrawal of the support measures adopted in the wake of the war in Ukraine and its impact on inflation. The extension of the reduction over the coming months was not the government's commitment to Brussels, since on 30 April in the document updating the macroeconomic and fiscal forecasts for the years 2024 and 2025, what the government envisaged was that from 30 June this year it would reverse the IVA reduction on foodstuffs.

Personal income tax threshold

In addition to the extension of the IVA reduction, the government also approved the increase in the personal income tax threshold to bring it into line with the increase in the Minimum Interprofessional Wage (SMI). Last year the threshold was increased from 14,000 to 15,000 euros and now it has been raised to 15,876 euros, below which no income tax has to be declared and is not subject to withholding. The maximum reduction for earned income has also been raised from 6,498 euros to 7,302 euros.

Montero quantified the savings in personal income tax for low and middle income earners at 1.4 billion euros and the savings for families at 1.036 billion euros as a result of the reduction in IVA.

The increase in the personal income tax threshold will benefit more groups, as it is a progressive tax, and the improvement will reach incomes of up to 22,000 euros, according to the minister, meaning 5.2 million taxpayers will save on their income tax. For example, a taxpayer earning the minimum wage (15,876 euros) last year would pay 325 euros and with this change will not pay income tax. Or an employee with the most common salary (18,502 euros) in 2023 paid 1,328 euros in personal income tax and with the increase in the threshold, will pay 1,129 euros.

Minister of economy Carlos Cuerpo justified the extension of the IVA rebate on foodstuffs on the grounds that food prices are still "significantly above" general inflation, with some products such as olive oil "making the whole of the household shopping basket more expensive".

Minister of agriculture Luis Planas said scrapping IVA on olive oil is a "good" step in the face of the "very significant" rise in the price of this product. "We want to be consistent with our policy of supporting all citizens, their ability to consume, families and also, obviously, a product that is a basic necessity and also of obvious health, such as olive oil," Planas said.

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