All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Spain’s Rajoy raises VAT even higher than expected


Spanish Prime Minister Mariano Rajoy has confirmed expectations of a VAT rise, but it goes further than many thought.

Despite the Spanish government repeatedly denying that it would need to raise VAT rates, International Tax Review predicted in May that it was poised to make a u-turn after the Minister of Economy, Luis de Guindos, announced that indirect taxes will be raised next year to reduce the budget deficit.

Rajoy has now confirmed that a VAT rise will happen.

“I said I would cut taxes and I’m raising them,” the prime minister said. “But the circumstances have changed and I have to adapt to them.”

Advisers, however, had only predicted that the rates would go up two percentage points to 20%, as recommended by the IMF.

“Alternatively we were expecting an increase in the reduced rate and moving items from the reduced rate into the standard rate to extend the tax base,” said Ana Royuela of Baker & McKenzie.

It comes as a surprise, therefore, that the government now wants to raise the VAT rate three percentage points to 21%. The reduced rate of 10% will be increased by two percentage points, while the lower rate of 4% will remain the same.

The increase is part of a plan to cut €65 billion ($79 billion) from the budget.

The government has not yet indicated when the increase will come into effect, but when rates were last raised in July 2010, they were approved two months before. Royuela therefore predicts that the rise will come in before 2013.

On Friday the Council of Ministers is expected to approve the tax hike and, as the government has a majority in parliament, it is all but inevitable.

Royuela believes the measure will be tough for businesses.

“If customers do not accept the increase and demand for products falls, companies will have to absorb the cost and look for other ways of reducing costs,” she said.

In the short-term, there will be a boost to demand as people look to procure goods and services before the rise comes in. But in the medium and long-term, Royuela thinks this measure will be bad for the economy.

More from across our site

The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
Tax leaders say communication with peers is important for risk management, especially on how to approach regional authorities.
Advances in compliance tools in international markets and the digitalisation of global tax administrations are increasing in-house demand for technologists.
The US fast-food company has agreed to pay €1.25 billion to settle the French investigation into its transfer pricing arrangements over allegations of tax evasion.
HM Revenue and Customs said the UK pillar two legislation will be delayed until at least December 2023, while ITR reported on a secret Netflix settlement and an IMF study on VAT cuts.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree