Palma.—Large retailers are doing their best to absorb the VAT increase hoping to avoid the rise affecting their campaigns after the summer sales, the results of which have yet to be revealed but early forecasts suggest that they did not perform well.

One of the greatest worries lays with the alterations, as it is the start of the school year; VAT for school materials is increasing from 4 percent to the maximum of 21 percent, although books, magazines and newspapers will remain in the minimum tax bracket.

Another of the areas affected by the changes is the hotel and catering sector, which will have to increase VAT from 8 percent to 10 percent, while establishments with shows will now charge 21 percent VAT.

Items passing from the minimum to the maximum tax bracket this month include flowers and ornamental plants, hairdressing and beauty services, as well as services that cater for sports and physical education such as gyms.

Those sectors hit by the highest VAT hikes are not happy and the centre right Partido Popular government has been accused by the opposition of reneging on its election manifesto and for having complained bitterly while in opposition about VAT increases introduced by the previous Socialist government. There are also fears that the economy will constrict further.

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