The Executive will take a new step on Tuesday to try to alleviate runaway oil prices, which have already accumulated an annual increase of more than 40%. The Council of Ministers will eliminate VAT on olive oil from the month of July – to be more precise, it will lower the rate to 0% – as reported by Cadena SER and EL PAÍS has been able to confirm. The Government’s intention is that the tax reduction to 0% is temporary, but that later there will be a structural change with the inclusion of oil, permanently, in the group of essential goods, such as bread, to which it applies normally the super-reduced rate of 4% —now also lowered to 0% to fight inflation—, according to sources from the Ministry of Finance.
PSOE and Sumar activated this change in Congress in March, as the socialists had agreed with Junts in exchange for their support for several decrees. The coalition government parties registered the measure as an amendment to the bill derived from the anti-crisis decree, which was validated in a January plenary session and which was approved to be processed as a project to introduce possible changes. Although the original agreement was reached between PSOE and Junts, the coalition government partners jointly signed the amendment.
The department headed by María Jesús Montero has already ordered the reduction of VAT on olive oil in 2023, when it went from 10% to 5%, within the framework of measures to combat the effects of the inflationary crisis. The same treatment was given to pasta, while basic necessities such as bread, milk, fruit or vegetables, normally taxed at 4%, now had a rate of 0% that will now be applied on a regular basis. temporary also to the oils. From now on, this product will be assimilated to basic foods, with a VAT that in normal periods is super low, 4%.
The Executive launched these tax cuts while approving other tools, such as the temporary reduction of energy taxes, to mitigate the impact on consumers’ pockets of inflation that skyrocketed to unprecedented levels with the Russian invasion of Ukraine. . The cost to public coffers of reducing food VAT exceeded 1.7 billion last year. Looking ahead to this exercise, the Government’s initial estimate pointed to some 834 million thus distributed: 100 million for the application of 5% VAT, instead of the usual 10%, to pasta and oils, and another 734 for eliminating the tax on basic products. The plan was for the discounts to be in force for only six months, but the Government has already announced that it intends to extend them.
Extension
The new measure approved for oil will increase the cost of the bill for anti-inflation measures, to which will probably have to be added the extension of the VAT reduction on other foods starting in July. The President of the Government, Pedro Sánchez, has already announced that he wants to extend the tax relief for the shopping basket, which came into force on January 1, 2023 and was extended until the middle of this year, in the face of inflation that has been going on for three months. of increases —although at much more moderate levels than a year ago; stood at 3.6% in May—and the resistance of some products, such as oil—which rose 45.5% compared to last year—to decline.
“The evolution of food prices still continues to be high and, therefore, we have to make that effort, which is an enormous effort for the public coffers, I think above all of the vice president and Minister of Finance. It is a necessary effort for our homes,” the President of the Government said last week, who however recalled that he will need the support of other groups for the measure to go ahead. “We will have to raise it in the Congress of Deputies. “This is a government with a parliamentary minority,” he added.
Treasury sources indicate that the objective of this measure is “to protect and encourage the consumption of olive oil.” Minister María Jesús Montero pointed out this week that the new extension of the VAT reductions, which were launched due to the rise in prices that followed the war in Ukraine and have been extended and expanded to more foodstuffs several times, will be six months, starting next July 1.
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