It is official the Spanish VAT is going to rise for the second time since the economic crisis began.
Earlier this week the Spanish prime minister Mariano Rajoy announced as part of the country’s deficit reduction program that the general VAT, applied to travel agencies, will increase from 18% to 21% and the reduce VAT, applied to hotels and transports, from 8% to 10%. The measure will take effect the 1st of September. It is important to not that, after this date, Spain will not stand out for having neither a low IVA nor a high one in Europe since the average is 21%.
Such action may directly affect the tourism sector, strategic segment of the Spanish economy whose role seems essential to boost the return to stability after the crisis. This imminent increase brings tensions between the government and the tourism sector which is afraid of loosing its competitiveness against the other European countries.
So, there are serious concerns that a VAT hike in Spain could affect the number of arrivals and the amount of money being spent on site by tourists. But considering the case of the Canaries that had a similar increase few weeks ago and where the hotels absorbed this increase, we can expect the same from Spain. Moreover the country has already seen the rate of tourism bettered this year with 19 million foreign holidaymakers between January and May, that is a 2,4% increase on 2011.
Thus we can hope that the tax increase may become an opportunity to reinforce the economy of a country that has definitely suffered from the economic downturn.
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