As of October 1, 2024, new VAT rates will be applied to many essential food items in Spain. This follows the end of a temporary VAT reduction introduced by the Spanish government earlier this year. Products like bread, milk, eggs, and olive oil, which had been exempt from VAT, will now have a 2% VAT rate. This change, mandated by Royal Decree-Law 04/2024, was approved on June 26 and will remain in effect until December 31, 2024.

New VAT Rates Explained

Before the emergency VAT reduction, items such as milk, eggs, fruits, vegetables, and bread were taxed at 4%, and non-essential products had a 10% VAT. Under the temporary measure, these items were either exempt from VAT or had a reduced rate of 5%. However, from October 1, these items will return to higher rates, with essential goods like vegetables, legumes, and olive oil facing a 2% VAT increase. Non-essential products like pasta and seed oils will see an even steeper rise, with VAT jumping to 7.5%.

The Impact on Household Budgets

The decision to end the VAT reduction is expected to affect household spending significantly, especially on items that are part of daily consumption. Olive oil, in particular, will see notable changes. It will move from a 0% VAT to 2% in October, with another increase to 4% scheduled for January 2025. Products like seed oils and pasta, currently taxed at 5%, will be hit with a 7.5% VAT. Small retailers will also face higher equivalent surcharges, adding further pressure on prices.

Why the VAT Increase Matters

The initial VAT reduction was introduced in response to rising food prices driven by global crises, such as the war in Ukraine. This measure was intended to offer temporary relief to consumers and small businesses, but its expiration marks a return to pre-crisis VAT levels. While the new rates are lower than before, they still represent a significant jump from the reduced rates applied in recent months, making it important for consumers to prepare for higher grocery bills heading into Christmas and 2025.