News / Europe

Spanish Businesses Fret Over VAT Hike

Tourists walk past Spain's former Banco Espanol de Credito in Madrid, August 28, 2012. Tourists walk past Spain's former Banco Espanol de Credito in Madrid, August 28, 2012.
x
Tourists walk past Spain's former Banco Espanol de Credito in Madrid, August 28, 2012.
Tourists walk past Spain's former Banco Espanol de Credito in Madrid, August 28, 2012.
Caroline Arbour
SEVILLE — Spain’s standard value-added tax will jump from 18-21 percent on September 1, and the reduced rate will rise two percent, the sharpest increase in the country’s history. The hike is expected to plunge Spain deeper into recession - at least initially - and opposition to the measure is widespread.

Braving the economic storm, Fernando Vázquez Rojas opened three restaurants in the past four years in Seville, where clients can dine for under 20 euros per person - a bit more than $25.

Business has been especially good at the location on Torneo Street, but he has felt the pinch of decreased consumer spending, with revenues falling since April by "15-20 percent, depending on the moment,” said Rojas.

Tax on a meal in a restaurant is set to increase two percent, from 8-10 percent, on September 1. Rojas is not worried. He said, “I am lucky. I increase the prices with the taxes and the price is two percent more. Maybe 20 cents, 50 cents per person. It is not a significant increase in prices.”

But the change in the reduced VAT rate will also apply to housing, transportation, eyeglasses, tickets to museums and hotel stays, among other things. The standard VAT rate, which is added on to the price of most products and services, will rise from 18-21 percent.  

Some items, like school supplies, will now fall into another category and be taxed 13 percent more. And that is certainly a significant difference for a country that once had one of the lowest tax rates in Europe.

Economist Javier Díaz-Giménez, of IESE Business School in Madrid, said "the highest rates are 23 percent in Greece, Portugal and Ireland, and now Spain is certainly moving above the average and getting closer to the maximum.”

Part of the austerity package announced in July by Spanish Prime Minister Mariano Rajoy, the tax increase is expected to bring about $25 billion into government coffers during the next two years - money Madrid desperately needs to hit tough European deficit targets.

Hike runs into opposition

But the measure has been met with fierce opposition.

The president of the national association of financial advisers, Antonio Durán-Sindreu, told Spain’s public television that the tax increases will mean "death by asphyxiation" for business, and that the government should have tried to stimulate consumption.

Instead, Spanish consumers will spend less, said Javier Díaz-Giménez. "I do not think anybody will win. I think some people will lose more than others. The tax burden, of any tax, is not borne equally by everybody."

Díaz-Giménez said higher taxes affect the poor disproportionately, and the tax burden increases by age.

Cutting corners

Pensioner Manuel Chaparro said he will cut back where he can, by eating out and driving less often.

And that is bad news for businesses.

Spain's tourism industry foresees losses of about $2.5 million annually, affecting tens of thousands of jobs.

The automotive sector vehicle sales during the remaining months of this year will drop by 25,000.

Many retailers, like the clothing chain Mango, have announced they will lower prices and absorb the cost of the higher tax to avoid losing sales.

Fernando Vázquez Rojas believes that for his restaurant the impact will be temporary, lasting maybe two months.

Vázquez Rojas is somewhat of a rarity - a risk-taking optimist in a country where hope and confidence in the future right now is in short supply.

You May Like

Multimedia Obama Defends Immigration Action

Obama says with his executive action on immigration, enforcement resources will be focused on 'felons, not families; criminals, not children' More

US-Led Airstrikes in Syria Kill Over 900: Monitoring Group

British-based Syrian Observatory for Human Rights says the toll includes more than 50 civilians, five of them women and eight of them children More

Report: Obama Broadens US Combat Role in Afghanistan

The New York Times says resident Barack Obama has signed a classified order extending the role of US troops in Afghanistan for another year More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
New Skateboard Defies Gravityi
X
November 21, 2014 5:07 AM
A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Gay Evangelicals Argue That Bible Does Not Condemn Homosexuality

More than 30 U.S. states now recognize same-sex marriages, and an increasing number of mainline American churches are blessing them. But evangelical church members- which account for around 30 percent of the U.S. adult population - believe the Bible unequivocally condemns homosexuality. VOA's Jerome Socolovsky reports that gay, lesbian, bisexual and transgender evangelicals are coming out. Backed by a prominent evangelical scholar, they argue that the traditional reading of the bible is wrong.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.

All About America

AppleAndroid