The president of Spain announces a reduction in electricity VAT from 10% to 5%

This measure will be one of many that will be approved on Saturday in an Extraordinary Council of Ministers.

The President, Pedro Sánchez, announced this Wednesday at the Congress that the decree that the Council of Ministers will approve this Saturday – to expand the measures to mitigate the economic effects of the war in Ukraine – will include a reduction in VAT on electricity from 10 at 5% – a year ago it had already been lowered from 21 to 10%.

In it, some of the decisions adopted will be expanded, such as the bonus of 20 cents per litre of fuel for all Spanish people and the direct aid to sectors such as transport, livestock and dairy, or the prohibition of raising rents above 2%.

 The Goverment said: This will “without a doubt” reduce the household bill.

Sánchez made this announcement during the control session of the Government in Congress, in response to the ERC spokesman, Gabriel Rufián, who precisely asked him to act in order to confront the growth of inflation – which can “overwhelm” the Government.

The president has blamed the conflict in Ukraine for the rise in prices in recent months, recalling that the Executive Power has already taken measures to help families and companies and has guaranteed that they will continue to take more actions, using the new energy VAT drop – that has been announced for this Saturday – as an example.

What does the reduction of VAT on electricity consist of?

The current reduction in VAT on electricity (from 21% to 5%) was approved by the Government on 25 June 2022. The measure deepens the reduction already approved in June 2021, which left the tax rate at 10%. The discount is articulated as follows:

  • A lowering of the VAT on electricity for consumers (domestic and business) with contracted power up to 10 kW. This reduction is effective in the months in which the average monthly price of electricity in the wholesale market is higher than 45 euros per megawatt-hour (MWh).
  • A specific reduction in the VAT on electricity for domestic consumers considered to be severely vulnerable (those who have the option of benefiting from the Bono social de la luz). They maintain this reduced VAT on electricity regardless of the average monthly price of MWh and the contracted power.

Who benefits from the lower VAT on electricity?

All domestic and business consumers, whether they are in the free market or the regulated market, benefit from the reduction in VAT on electricity. However, this reduction has some conditions:

Only consumers with a contracted power of up to 10 kW will benefit from it. This covers the vast majority of Spanish households and 72.5% of companies and businesses in the country, according to data from the Ministry of Finance.

How long will it be in force?

The lowering of VAT on electricity to 5% will be in force until 31 December 2023, after the last extension approved by the Executive in the Council of Ministers on 27 December 2022.

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