The government cuts VAT on basic foodstuffs to 0%, agrees to a €200 grant extending the beneficiaries and extends the energy tax reduction to combat inflation and the cost of living.

Dec 28, 2022 | Current affairs, Featured, Thursday Daily Bulletin, Tradition

Staple food items, such as eggs, dairy products and fruit, will no longer be taxed at 4% to combat the rise in the cost of the shopping basket caused by inflation until 30 June 2023.

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Oils and pasta will also see a reduction in VAT from 10% to 5% during the first half of the year.

The 200-euro subsidy will benefit 4.2 million households with incomes of less than 27,000 euros.

Electricity will continue to be subject to 5% VAT on the bill, as will deliveries of natural gas, briquettes or pellets.

Surgical masks will maintain a VAT rate of 4% during the first half of 2023 due to their compulsory use in public transport and other areas, while diagnostic tests and vaccinations will continue at 0%.

The Royal Decree-Law includes tax exemptions and benefits for the victims of last summer’s forest fires in 15 Autonomous Regions.

The Council of Ministers has approved the Royal Decree-Law on measures in response to the economic and social consequences of the war in Ukraine and to support the reconstruction of the island of La Palma and other situations of vulnerability, which includes several tax measures and tax benefits.

This package of measures presents some very important innovations to help the public cope with the price tension in the shopping basket caused by inflation.
These include a reduction in VAT on fresh or staple foods, from 4% to 0% and from 10% to 5%, depending on the type of staple food.
In addition, a new direct line of aid for low-income and low-net-worth individuals has been approved, extending the number of beneficiaries who will be able to receive a single payment of 200 euros.

This Royal Decree-Law includes the extension of some initiatives that were already in force and were due to expire on 31 December 2022. This is the case of tax rebates on electricity and gas bills or on surgical masks, vaccines or tests to diagnose COVID-19.

Food staples

The first major measure will affect food prices, one of society’s main concerns due to inflation. To mitigate this reduction in families’ purchasing power, the government will reduce the tax rate on fresh and staple foods from 4% to 0%. This will affect the following products:

  • Common bread, as well as frozen common bread dough and frozen common bread intended exclusively for the production of common bread.
  • Bread-making flour.
  • Milk produced by any animal species: natural, certified, pasteurised, concentrated, skimmed, sterilised, UHT, evaporated and powdered.
  • Cheeses.
  • Eggs.
  • Fruits, vegetables, legumes, tubers and cereals, have the status of natural products in accordance with the Food Code and the provisions issued for their development.

VAT on pasta and oils, including olive oil, will be reduced from 10% to 5%.

These tax reductions from 4% to 0% and from 10% to 5% will remain in force until 30 June 2023 or until the year-on-year rate of underlying inflation falls below 5.5%.

These measures put the focus on the products most used on a day-to-day basis, which have experienced large increases in recent months.
Now, the government is betting on these tax changes to continue with its policies to lower the cost of living. These have allowed Spain to be the EU country with the lowest inflation in the last month.

The aid of 200 euros

In order to help lower the cost of living, a new single payment of 200 euros is also included, increasing the number of beneficiaries who will be able to receive it in order to alleviate the detrimental effect on prices caused mainly by the energy crisis resulting from the invasion of Ukraine.
With this aid, which will reach 4.2 million households, situations of economic vulnerability that are not covered by other social benefits, such as pensions or the Minimum Vital Income, will be reduced.

This aid will be available to both those receiving unemployment benefits or subsidies in 2022 and those who are self-employed or employed and registered with the corresponding Social Security or mutual insurance company. The requirements are that the household income is less than 27,000 euros and the assets do not exceed 75,000 euros on 31 December 2022. The main residence will be excluded from the calculation of assets.