Spain’s Pedro Sanchez announces VAT hike on electricity bills: Tax will rise to 10% and could more than double next year

VAT rates on domestic electricity bills in Spain will double in the New Year from 5% to 10%.

Prime Minister Pedro Sanchez announced the move following a meeting of the Council of Ministers on Wednesday.

The main item on the agenda was deciding which measures to renew or change by royal decree which were introduced to fight inflation and the impact of the war in Ukraine.

VAT on electricity will rise to 10% in the New Year as opposed to the original 21% rate which was slashed in July 2021.

The new rate will apply until the end of next June.

Pedro Sanchez told a lunchtime news conference that the cost of electricity had dramatically changed over the last 22 months.

“On the eve of the invasion of Ukraine, the price per megawatt was €360 per hour, and last Friday it was seven times lower at €51.80,“ the Prime Minister said.

“We have decided to withdraw the tax reductions on electricity and gas, gradually over the next six months,” he added.

Sanchez revealed that VAT on gas will be fully restored in February ‘once the winter is over’.

VAT will continue to be abolished over the same time frame on basic foods which include bread, flour, milk, cheese and eggs.

A reduction from 10% to 5% of VAT on oils and pasta will also be maintained for six extra months.

The government will extend the suspension of evictions from main homes for vulnerable individuals and families.

Aid to public transport will remain in place for another year meaning that current free services will continue like for frequent users of certain Renfe train services.

The government will also maintain its windfall tax on banks and energy companies- introduced in 2022- for an extra year,

The windfall levy has raised €2.9 billion this year according to the Ministry of Finance.

Bank cash withdrawal charges will also be scrapped for the elderly and disabled.

Pedro Sanchez also talked about July election and his subsequent November investiture.

“This was a year marked by the general election where I invoked the need to clarify the course that the country should follow and Spaniards were confronted with the same dilemma as other nations: to choose between a government marked by the agenda of the far right or another marked by a progressive agenda of social advances. Fortunately, Spain chose the latter.”

Sanchez stressed that his new government is committed to ‘dialogue’.

“We’re going to do what we’ve done for the last five years which is talking to everyone,” he pledged.

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