Spain cuts VAT tax rate on electricity bills to 10% from 21%

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Spain’s will cut VAT tax on electricity bills to 10% from 21% until the end of the year to provide immediate relief for consumers amid rising energy prices, government spokesperson Maria Jesus Montero said on Thursday. The reduction will cost the government 560 million euros ($668.53 million) in lost revenue in 2021 and will save households around 857 million euros, she added.

Most households and many small businesses, those with contracted power capacity of up to 10 KW, will benefit from this measure as long as the average monthly wholesale electricity market price exceeds 45 euros per megawatt hour (MWh).

Also, the government will suspend during the third quarter of the year a tax on the value of electricity generation (7%), which utilities ultimately pass on to the retail market price.

The rise in electricity prices has coincided with a new formula for calculating household consumption, which has upset many Spaniards who believe it is pushing up rates.

“It is a complicated situation at a difficult moment of economic recovery. That is why we thought it was essential to relieve the electricity bill with fiscal measures,” Environment Minister Teresa Ribera told reporters after the cabinet meeting.