Spain's bumps up VAT taxes in effort to ease its economic pains

Source: The Daily Telegraph
Author: Jolyon Attwool

The Spanish Prime Minister Mariano Rajoy announced that general VAT – including items such as clothing and cigarettes – would be raised from 18 per cent to 21 percent to combat the country’s mounting economic difficulties.

VAT for the leisure industry, which is at a reduced rate, will increase from eight per cent to 10 per cent, covering accommodation, food and drink at restaurants, hotels and bars, as well as processed food.

Visitors booking hotels independently may find the tax rise is added to their bill for stays after August 1 this year.

A family that spent £1000 on an independent hotel stay, as well as food and drink, would find £20 added to their costs, without taking the purchase of more highly taxed general items into consideration.

However, those who have already booked package holidays this year will not find the cost of their break is affected, the Association of British Travel Agents (ABTA) confirmed - although prices are likely to rise in the future. The only impact on those visitors will be on the ground, on items not included in the holiday price.

The VAT rise was sharply criticised by the Spanish Tourism Commission.

"The tourism sector regrets the government's lack of sensitivity for a strategic sector that is key to kick-starting and accelerating Spain's economic recovery," it said in a statement.

The industry had previously asked Spain's centre-right government to freeze VAT for the sector.

Sean Tipton of ABTA described the move as "very short-sighted."

"Spanish hoteliers, bar and restaurant owners have bent over backwards to keep their prices down...and increasing VAT risks wasting a lot of their efforts, " he said.

"Customers always have the choice to go elsewhere for their next holiday.”

However, some tour operators expressed relief that the tax rise was not steeper – an increase of up to 10 per cent had been feared.

Bill Allen, the managing director of the On Holiday Group, told Travel Weekly: "Two per cent is a much more sensible approach. There was a similar increase in Canaries a few weeks back and there the hotels absorbed the increase - we'd expect the same to happen now in Spain .

"No increase would have been better but overall this is a victory for common sense."

The number of overseas visitors to Spain increased in the first five months of this year, making tourism one of the few areas of the country’s economy to expand.

Official figures showed that 19 million foreign holidaymakers came to Spain between January and the end of May, a 2.4 per cent increase on the previous year.

According to the Spanish Institute of Tourism Studies (Instituto de Estudios Turísticos) Britons make more than 12 million visits to Spain each year, which makes it one of the most-visited countries by British nationals.

These latest tax rises follow the introduction of a Spanish airport tax at the beginning of this month, adding up to £7 to the cost of flights. Most airlines have agreed to waive costs for the airport tax for those who had already bought tickets. However, BMIbaby and Ryanair, have said they will charge customers the extra money retrospectively.

Although VAT rises will affect British holidaymakers, they are countered by the strength of the pound against a weak euro. Travellers have also taken advantage of numerous cut price hotel and package holiday deals, with many visitors choosing to take a break in more familiar surroundings with problems in countries such as Egypt and Tunisia.

The increases are part of series of tax rises and spending cuts amounting to an estimated €65bn (£51bn) in austerity measures, as the government seeks to reduce borrowing costs of around 7 per cent.