Spain to scrap VAT on olive oil from July

The Spanish government will remove the VAT (Value Added Tax) on olive oil as of July 1. 

The recent announcement has been met with support from food distribution chains and criticism from consumer organizations. 

Olive oil, which currently enjoys a 5% VAT reduction, will be included in the group of essential products with a super-reduced tax rate.

With the tax exemption, olive oil will join other basic products such as bread, eggs, fruit and vegetables, and will be permanently classified as such.

The aim of this measure, according to the government, is to protect and promote the consumption of olive oil and reduce its price at a time when the Spanish countryside is suffering from a severe drought.

Over the past year olive oil prices have increased drastically, with some brands seeing price increases of up to 165%. These price increases have been made in response to poor harvest yields of olives over the past few growing seasons. 

The rise in agricultural prices due to the war in Ukraine, one of the world's leading producers of sunflower oil, have also contributed to the increase.

In Catalonia, major producers already warned last year that the price of olive oil would continue to rise due to low olive production.

One vocal critic of the government decision to reduce the VAT tax is the consumer association Facua, who believe it is irrational to reduce a supply chain tax while not acting upon the price hikes on olive oil directly. 

Food distributors on the other hand are welcoming the VAT reduction as they view the measure as a necessary step in reducing prices following disastrous harvests in recent years.

The decision to scrap the VAT on olive oil comes after the Spanish PM Pedro Sánchez announced last week his intention to extend the current VAT reduction on some basic food items, which was set to expire on June 30.

"This is a government with a parliamentary minority, but food prices are still high, so we have to make this effort, which is enormous for the public finances," he explained.