The Government has decided to reduce the VAT on olive oil to 0%, effective July 1st, following a decision to be formalized at the Council of Ministers meeting next Tuesday.
Olive Oil VAT Reduced to 0%
At least temporarily, the Government will implement a maximum VAT reduction on olive oil, cutting it to 0% starting July 1st, as confirmed today by the Ministry of Finance. This measure isn’t entirely new. It was part of an agreement reached in January with Junts in exchange for their support of anti-crisis decrees, and was formalized by PSOE and Sumar in Congress in March.
Timely Context
What’s new is the timing of this reduction. After years of soaring prices, the VAT cut to 0% comes as the Government anticipates a decrease in olive oil prices due to a promising harvest.
Decision Details
The decision to implement this VAT cut was previewed this morning by SER and confirmed by María Jesús Montero’s department. The announcement is noteworthy for two reasons. Firstly, it sets a clear implementation date: the start of the new month. Secondly, it indicates that the VAT review has a structural aspect.
Beyond the 0%
In addition to the temporary reduction, the Ministry of Finance has decided that olive oil will permanently join eggs, vegetables, fruits, and bread as essential goods. This is significant from a tax perspective as it suggests a long-term VAT reduction beyond this temporary measure.
According to Europa Press, this change will categorize olive oil under goods and services with a super-reduced VAT rate of 4% in normal conditions, rather than the current reduced rate of 10%.
Expected Measure
Yes, this measure was anticipated. While the news of the upcoming Council of Ministers’ approval is significant, the 0% VAT reduction is based on an agreement made over six months ago between PSOE and Junts to secure the latter’s support for the Government’s anti-crisis decrees. Subsequently, in March, the Government parties, PSOE and Sumar, formalized the VAT reduction on olive oils to 0% in Congress.
This is not the only food price-related decision taken by the Government in June. Recently, President Pedro Sánchez also announced the extension of the VAT reduction on certain high-priced products, initially set to expire on June 30th.