26th February 2024
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VAT on electricity more than halved in response to escalating prices

The Spanish government has confirmed a significant reduction in IVA (VAT) on electricity, more than halving the existing rate of 21% to just 10%. The change was confirmed at a cabinet meeting held on Thursday and will be applied until the end of this year.

The reduction will be applied to all vulnerable consumers or those contracted for up to 10kW of power, (the average in households is 4.1kW), as long as the average monthly price of the wholesale electricity market remains above €45 per megawatt/hour. This will mean that most households and many small businesses will have reduced electricity bills until the end of the year.

Spanish Finance Minister María Jesús Montero said in a press briefing on Thursday that the government will consider whether ‘further measures’ are needed when the cut expires at the end of the year. 

She said that the vast majority of households will benefit from the reduction, which will mean saving €857 million for them, with 72% of companies also paying less VAT on electricity. 

There have been increasing demands for a reduction in VAT after weeks of sharp rises in electricity prices, that has been caused by many factors including high demand due to hot summer temperatures.

The recent price rises have also coincided with the introduction of a new formula for calculating household consumption, introduced on 1 June. Many consumers were concerned that the new calculations were pushing up the rates of electricity charges.

Rising prices were becoming an issue for the government and increasing resentment from consumers. The Minister for Ecological Transition, Teresa Ribera, confirmed last week that the reduction in VAT was needed ‘on an exception and provisional basis’ to stop escalating prices.

Recently, Spain had recorded a period of the highest rise in electricity prices ever, and the reduction in VAT will be welcomed across the board.

Podemos, the left-wing partner in the PSOE-led coalition government, had been supporting the campaign for the reduction in recent weeks and insisting that the change should be permanent, as they argue that electricity is a basic need and should not be taxed as a luxury.

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