Spain’s increased VAT sends car sales down 28 percent image

Car sales in Spain fell by a whopping 27.6 percent in the first two weeks of September following an increase in value-added tax, according to car retailers association GANVAM.

The number of cars sold by mid-September was 12,300 units, a sign that the tax rise is further intimidating consumer spending in a weakened economy. The price of the average car rose by 650 euros on September 1 after the tax hike, GANVAM said.

In desperate need for cash, the Spanish government increased VAT on most items to 21 percent as part of an effort to delete 65 billion euros from the public deficit by the end of 2014.

“These figures confirm our fears that the crisis in the sector is becoming more severe. If you increase taxes in a market paralyzed by lack of financing, declining consumption and uncertainty about the future, it’s inevitable that demand will fall even further,” said GANVAM president Juan Antonio Sanchez.

In August, car sales rose 3.4 percent, after 25 consecutive months of declining sales, with consumers rushing in to buy cars to avoid paying more VAT in September. In July, car sales fell 17.2 percent year-on-year.