IVA increase to cost families an extra 30 euros per month

As from 1st July the general rate of IVA will be increased from 16% to 18%. This band is applied to products and services, such as electrical appliances, clothes and shoes, cigarettes, vehicles, do-it-yourself products and plumbing services. It is also applied to electricity, fuel, natural gas and butane gas which have already seen considerable price increases in recent months. In the case of electricity, the additional charge for IVA comes on top of price rises of 2.6% in January this year and nearly 5% last year; whereas petrol and diesel prices have already risen by 7.8% and 11.3% since January.

The reduced rate of IVA will rise from 7% to 8% and will affect food (apart from basic essentials), passenger transport, entertainment, housing, cosmetics, dentists and health products.

The super-reduced rate of IVA, which is applied to basic essentials such as bread, milk, fruit and vegetables, council housing, medicines for human use and some cultural products, such as books, newspapers and magazines, will remain at 4%.

The Government's main argument for raising IVA is the need to increase its income and thus help in the essential task of reducing the deficit to levels closer to 3% by 2013.

Spain is not the only country to have chosen this method to counteract the drop in its national income caused by the economic crisis. Some countries, such as Latvia and Lithuania, decided to do likewise in 2009 and others, including Greece, the United Kingdom. and Portugal have done so this year.

Despite the rise, Spain will still have one of the lowest rates of IVA within the EU, only bettered by a few such as Cyprus and Malta.

A further blow for tourism

One of the sectors that will be hardest hit by this new measure is tourism, as the increase in IVA from 7% to 8% will affect the cost of travel and accommodation as well as all catering services, according to the President of ASHOME (the Menorcan Hoteliers' Association). Joan Melis pointed out that, whilst other sectors can pass the increases on in their final prices, the hoteliers will have to absorb the added cost themselves, apart from on any holidays booked after 1st July, as contracts with tour operators are signed well in advance of the season. This will obviously affect the balance of accounts of companies that are already having a hard time.

The association had called for the introduction of increased IVA rates to be delayed until after the season to help the sector and, nationwide, there was a demand that the rate be lowered to encourage tourism by being more competitive, but both petitions were unsuccessful.