Value-added tax reduced on staple groceries

CUTTING value-added tax on basic foodstuffs has already borne fruit for households in Spain, and the move will continue for at least the first six months of 2023, the national government confirms.

From Sunday (January 1), IVA – as this tax is known in mainland Spain and the Balearic Islands – is no longer charged on milk, bread, cheese, eggs, fruit, vegetables, cereals and pulses, which previously attracted the lowest rate of 4%.

Middle-rate IVA, currently 10%, which normally applies to pasta and cooking oil, has been reduced to 5% for these goods.

Consumers remain sceptical, saying they expect supermarkets will simply raise their prices and the public will not benefit from the tax cut, but the government says this will not be allowed.

Stores are not permitted to take advantage of lower IVA to charge more and increase their profits.

Supermarket bosses stress that the IVA element is only a small part of the end price, meaning it is not clear whether costs to customers will continue to soar.

Depending upon the goods in question, price tags have risen by anything from 10% to 100% - as an example, stores' own-brand milk has gone up by 61%, from approximately 57 cents a litre to 93 cents.

National authorities say groceries affected by the IVA reduction must not go up in price for four months, although it is unclear whether this period will be extended to include the whole six months of reduced value-added tax, nor whether the IVA cut will go on for longer.

Major supermarket chains say the actual impact on home finances through lower IVA will depend upon the type of goods individual customers typically buy, although the Association of Finance Consumers in Spain (ASUFIN) has carried out research to try to predict the levels of savings possible.

A stock-take of items on sale in five supermarkets – Mercadona, Día, Alcampo, Carrefour, and El Corte Inglés – on December 29 and again on January 2, the first working day after New Year, found that an average shopping basket of staple goods would be around 10% cheaper.

This represents a saving of about €3.56.

ASUFIN warns stores are likely to round up prices which are discounted, rather than round them down, but said some of the savings are the result of the 'January sales'.

After the festive season, food items are often reduced in price to encourage people to buy more at a time when purchases typically fall – due to leftovers from Christmas still being eaten up, less disposable income due to compensating for over-spending during the holidays, and not needing to buy non-basic foods which are popular for Yuletide family gatherings.

The greatest savings are seen in the El Corte Inglés food hall, given that the national department store chain's in-house supermarket is one of the more high-end outlets – customers will spend an average of 15.54% less now, with shopping bills €5.51 lower.

Alcampo shoppers will save about 14% (approximately €4.24), those buying in Día will pay 9.46% less (€3.32), Mercadona customers' bill will fall by a typical 7.76% (around €2.60), and purchases at Carrefour will come in 6.32% cheaper (€2.14), ASUFIN says.