THE two percent increase in the IVA value-added tax rate this summer will not drive up consumer inflation at the same rate, Industry Minister Miguel Sebastian said yesterday. “Experts calculate that it will have an effect of about 0.5%. Only a quarter of the VAT increase will go to prices,” Sebastian said in a televised interview.

The impact of the VAT rise on consumers depends on demand and the market situation, he added. Spain will raise VAT to 18% from 16% in July.
Finance Minister Elena Salgado earlier this month had said the increase will slow consumption, but only temporarily, while bringing the government an additional 8 billion euros a year in revenue.

Sebastian also said yesterday that he is not sure whether the VAT rise will affect Spain's vital automotive sector, as 80% of Spain's car output is being exported and thus not subject to the Spanish VAT increase.

Spanish car registrations rose 47% on the year in February, Spanish car manufacturers' association Anfac said on March 1.
The association said car sales rose due to a government car scrapping scheme that will end once funds for it run dry, which it expects to happen around April.

Sebastian said the government will not extend the car-scrapping scheme despite the VAT increase.
However, it is the tourist industry and the self employed which are most concerned about the very controversial hike in IVA.