Reduced VAT on electricity bills to end this month in Spain

VAT on electricity bills will leap up from 10% to 21% in March due to big falls in the wholesale price of energy.

Anti-inflation measures saw the tax cut to 5% on domestic bills in 2022 and was doubled at the start of the year.

The plan was for the original 21% figure to be restored by June, depending on the direction of the wholesale electricity market with an automatic trigger for the rise to happen.

The law states that if the wholesale market ends a calendar month below €45 per megawatt hour- as was the case in February- the VAT rate then automatically rises to what it was.

The government has no plans to reverse that measure and therefore customers will see the return of the full tax rate in bills sent out in early April.

The average wholesale price of electricity for February stood at €42.43 euros per megawatt hour, despite prices rising on the last two days of the month.

According to forecasts, households will register an average increase of €7.48 per month compared to a year ago when the 5% VAT rate was in operation.

The return to a 21% tariff means that homes will pay an average of €90 extra per year and will also cause a rise in March inflation figures.

The cuts have been some of the biggest tax cuts-ever with the Finance Ministry calling them ‘The highest in history’.

They say that the reductions have reached €25 billion for both residents and businesses since 2021, which includes Covid pandemic support.

On natural gas supplies, VAT will remain at 10% for biomass fuels throughout the year and only in the first quarter of 2024 for conventional gas.

Heat supplies will follow the same pattern, depending on their fossil or renewable origin.

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