The VAT on electricity will fall from 10% to 5%. This was announced by the President of the Government, Pedro Sánchez, in the control session that takes place every Wednesday in the Congress of Deputies. It is, therefore, one of the measures of the anti-crisis plan that the extraordinary Council of Ministers will approve next Saturday and that aims to alleviate the economic effects of the war in Ukraine that have meant, among others, an unprecedented rise in prices that has generated that light, gasoline and food are more expensive than ever. The consumer price index (CPI) stood at 8.7% in May, the highest figure in almost four decades.

The first package of measures arrived at the beginning of April, which included up to 22 proposals among which the 20-cent bonus on gasoline, the gas cap or a 15% increase in the amount of the minimum living income (IMV), among others, stood out. All of them were approved with a term of three months. The intention was that when the deadline arrived, which is next June 30, the Government would consider whether to extend or include new measures. Something that, given the circumstances, the Executive has been forced to do: the rise in the price of gasoline and diesel, which there is even talk that it could reach 3 euros per liter, has eaten up the 20 cent bonus and the gas cap has not served to reduce the electricity bill.

As things stand, and in a new attempt to prevent inflation from continuing to make a dent in the pockets of Spaniards and, therefore, paralyzing the economy, Sánchez has announced that one of the measures will be a 5% VAT on electricity. In any case, the small print of this measure will have to be taken into account.

Depends on the power

It is worth remembering that the Government decided in June 2021 to modify the VAT on electricity by including it in the list of reduced VAT products and services by reducing it to 10%. However, this reduction was only available to domestic consumers with a contracted power of up to 10 kW, whether they were individuals or companies. As explained in the Royal Decree at the time, this meant, in reality, that it applied to all household consumers, since the average contracted power is approximately 4.1 kW.

The Royal Decree also indicated that the reduced VAT would be maintained as long as the price in the wholesale market is higher than 45 euros per MWh. Although, to tell the truth, electricity has been priced above 45 MWh for almost a year now.