Spanish government to cut electricity VAT from 21% to 10%

The Spanish government decided to cut VAT on electricity bills from 21% to 10% in its extraordinary meeting held on June 24.

The tax reduction comes after the latest update of electricity tariffs caused anger and confusion among customers, with companies urging citizens to do the laundry at night or on weekends as a means to pay less.

The change was approved in the cabinet meeting, convened in order to also confirm that face masks will no longer be compulsory outdoors from June 26.

The new tax rate will apply until the end of the year for all consumers with a contracted power of up to 10 kilowatts (the average in households is 4.1kW), as long as the average monthly price of the wholesale electricity market remains above €45 per megawatt/hour.

The 10% VAT rate will apply to severely vulnerable consumers regardless of contracted power and market price.

In addition, the 7% VAT rate on electricity production will be suspended in the third quarter of this year.

Finance minister María Jesús Montero said to the press on Thursday that in December 2021 the government will consider whether "further measures" are needed when the cut expires when the year comes to an end. 

According to her, the vast majority of households will benefit the reduction, which will mean saving €857 million for them, and 72% of companies will also pay less VAT in the electricity bill. 

New electricity tariffs

Campaigners warned that the new electricity tariffs in force across Catalonia and Spain from June 1 could lead to higher bills in the months ahead.

From Tuesday, June 1, electricity prices vary according to when power is consumed. There are three rates.

The highest rate applies Monday to Friday from 10am to 2pm and from 6pm to 10pm.

The middle rate applies Monday to Friday from 8am to 10am, from 2pm to 6pm and from 10pm to midnight.

The cheapest rate applies throughout the day on Saturday, Sunday and bank holidays, and up until 8am Monday to Friday.

The Alliance against Energy Poverty said at the time they were particularly concerned about the impact on vulnerable families, who could end up having "even more" difficulty paying bills.

They were therefore keen to reassure people in financial difficulty and remind them of their legal rights. "They must keep in mind that in Catalonia, Law 24/2015 protects them from cuts in the event of non-payment."