Coup de effect of the Government of Pedro Sanchez. Two days before extending the anti-crisis decree, the President of the Spanish Government has announced a reduction in VAT on electricity bills to 5% to try to contain the escalation of prices in which the electricity bill is immersed in recent months. This rate, which would normally be at the maximum rate of 21%, was reduced to 10% a year ago, when the escalation in electricity prices began, and now it is expected to take it to a minimum. The savings for a consumer medium with a monthly bill of about 60 euros It will be about 2.7 euros. Although there are still many unknowns about the application of the measure, these are some of the keys:
Why a 5% rate?
The European directive that regulates VAT authorizes member states to apply reduced rates to natural gas, electricity and heatingbut respecting a minimum rate of 5%. This was transmitted by the Commissioner for Economic Affairs, Paolo Gentiloni, in a letter to the 27 partners at the end of April this year detailing the fiscal measures that can be carried out to deal with the current energy crisis. In other words, the Government cannot reduce the invoice to 4%, the minimum rate of value added tax in Spain, but must do so at a maximum of 5%. This reduced rate could also be used for solar panels, in which case the European Commission allows it to be reduced to zero. However, Brussels does not allow Member States to have more than two different reduced rates.
Currently, the current discount of the VAT at 10% affects all consumers with up to 10 kilowatts of contracted power, provided that the monthly average price of the wholesale price of the previous month is greater than 45 euros per megawatt-hour. Currently, the price of electricity multiplies this figure by five. Therefore, in the absence of knowing more details about the measure, if there are no changes in that condition, the VAT reduced to 5% would affect all electricity bills for households and SMEsboth those of the consumers of the free market and those of the regulated market (PVPC).
When does it start to apply?
“It will go in the decree law and, therefore, It will enter into force on the day the Council of Ministers approves it.“, the Minister of Finance responded this Wednesday, Maria Jesus Montero, in statements to the media collected by Europa Press. The Government plans to hold an extraordinary ministerial meeting this Saturday to approve this new decree law to mitigate the effect of the crisis in Ukraine, so its application will come into operation immediately and will be maintained for a period of three months, according to reports Juanma Romero.
Are there other taxes on the invoice?
Yes. Electricity in Spain is taxed, in addition to VAT, by the Special Tax on Electricity (IEE) which, in addition to being applied to the term of contracted power and energy consumed, is part of the VAT tax base, that is, it has double taxation on the invoice. This tax has stood since September last year at 0.5%, the minimum authorized by European regulations. In addition, electricity is also affected by the Tax levied at 7% on the Value of the Production of Electric Energy (IVPEE), which companies pass on to consumers through a surcharge on the bill. This fee has been suspended for a year.
The prices of the gasoline and diesel have also been triggered after the start of the war in Ukraine, which has led the Executive to establish a 20 cent bonus on these fuels, to which is added another carried out by the large oil companies. This Wednesday, after the announcement of Pedro Sanchez during the plenary session of Congress, the deputy of the People’s Party Juan Diego Requena Ruiz asked the Executive: “What is going to happen with the VAT on fuels?” Her interlocutor, the third vice president and minister for the Ecological Transition, Theresa Riveradidn’t directly reference this question, but the answer is that it will stay the same. Brussels does not allow VAT on fuel to be reduced.
What will be its impact on public coffers?
This reduction will cost the public coffers between 250 and 300 million, according to reports Juanma Romero. But this does not imply a drop in collection by the Treasury compared to a normal situation because the current rate of VAT is the fourth part than there was a year ago (in June 2021 it was lowered from 21% to 10% and now it is lowered to 5%), a percentage equal to or even lower than the increase in the price of electricity, therefore, the collection for Treasury will remain the same as before the start of the price escalation. The wholesale price of electricity historically hovered around 45 euros per megawatt-hour, which doubled in June last year to reach 80 euros per megawatt-hour, while in the last week it stood at 250 euros per megawatt-hour. hour. In the absence of knowing its evolution, the Government’s forecasts on the gas cap pointed to final prices between 150 or 180 euros per megawatt-hour until May 31, 2023.