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Date Published: 27/02/2024

VAT on electricity in Spain to jump following February price slump

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Spain will reduce the VAT to 10% if energy costs rebound in the coming months

VAT on electricity in Spain to jump following February price slump

The recent decrease in electricity prices has brought relief to household consumers with regulated market contracts, but it may also trigger an unplanned increase in VAT from 10% to 21%, which will certainly dampen any savings they’ve made.

This hike, which the Spanish administration hadn’t planned on implementing until January 2025, will impact all consumers, including those with free market contracts. The electricity sector itself views this as a ‘tax lottery’ that creates uncertainty and volatility.

The government introduced this measure to address the price crisis sparked by the war in Ukraine, but the sector believes it's a barrier to electrification. Other electricity taxes will also increase progressively.

As things stand today, if the average price of electricity in February surpasses 45 euros/MWh, the VAT rate will increase from the current 10% to 21%, as stated in the decree issued late last year. This decree considered a gradual increase in energy-related taxes, starting with a hike from 5% to 10%. Should the average price on February 27 be below 42.3 euros/MWh, it will signal an impending VAT increase to 21% come March.

Sadly for the average householder, this seems increasingly likely considering the way the market has been behaving of late, and power providers are now appealing to the government to reconsider these variable VAT mechanisms, arguing they're unfair to consumers.

In the improbable event that electricity prices exceed the average of 45 euros/MWh per month, then the VAT will go back down to 10%.

The Spanish government has pointed out that the expected rise in electricity prices in March and the potential fluctuations in the VAT on electricity throughout the year should actually be viewed as a good thing, since the increase in VAT is a result of a decline in electricity prices.

This decrease is attributed to a milder winter and the increased integration of renewable energy sources, thereby rendering unnecessary any measures to prevent the upcoming price hike. In 2025, the VAT on electricity is slated to increase to 21% regardless.

“The measures that were designed with conditions associated with the evolution of prices, the urgency of inflation in energy matters, have to continue their course and will continue to do so if the situation arises in the following months," declared the Minister of Economy, Carlos Body.

In other news: Spanish channel accuses BBC of plagiarising hit TV show

Image: Pixabay

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