Government announces IVA hike for next year | Lawyers ...

The increase in value added tax will go hand in hand with a reduction in employers? Social Security contributions

In 2010 when Zapatero?s Government increased value added tax (IVA) the current Prime Minister, Mariano Rajoy, said the measure was crazy. Now he has announced that his Government will do the same thing, from 2013, as many experts and financial consultancy firms had forecast, in order to increase state income and reduce the public deficit.

Now the Minister of Finance, Luis de Guindos, has announced an increase in the ?imposition on consumption?, using the word ?imposici?n? rather than ?impuesto? (tax), a euphemism that, he later confirmed off camera, referred to IVA as well as special taxes on cigarettes, alcohol and fuel.

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?There will be a modification in the taxation structure in Spain?, he explained, announcing a reduction in the ?imposition? on workers and an increase in that on consumers. However the aforementioned reduction does not mean tax relief for workers. Finance Ministry sources confirm that the Governmment?s plan is to reduce the Social Security payments made by employers, a measure that the business association CEOE has been calling for since the beginning of the crisis.

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This latest blow to households? spending power comes not so long after Jos? Luis Rodr?guez Zapatero?s Socialist Government put up value added tax in 2010. Then the general rate went up from 16 to 18 per cent, while the reduced rate, for basic commodities, changed from seven to eight per cent. This provided an extra six billion euros for the state coffers.

In 2013, the Government?s aim is to raise an extra eight billion euros, plus another billion from the income tax (IRPF) increase approved by Rajoy last December. Minister De Guindos did not specify last week how much of the increased income is expected to come from IVA or by how much the rate will be increased.

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During last year?s election campaign Rajoy insisted that he would not increase value added tax. In fact the current Treasury Minister, Crist?bal Montoro, when he was head of the PP?s financial team in the opposition, led a ?crusade? in Parliament against the measure. In January, not long after he was named Minister, he said in an interview to the newspaper ABC that ?increasing IVA would double the fall of the economy?. Now, as the head of the department responsible for taxation it will be up to him to apply the increase.

Luis de Guindos explained that the Government had decided to increase the tax next year and not this because they believe that by that time ?a recovery will have set in?.

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