How much can I save on my Spanish electricity bill now that VAT has been cut?


With welcome information that Spain will reduce VAT on electrical energy from 10 p.c to 5 p.c to defend customers from hovering inflation, how a lot are you able to count on to truly save?

Published: 23 June 2022 11:40 CEST

Spain’s Tax Agency estimates that the federal government has to this point spent €3.8 billion on all tax cuts to decrease electrical energy payments. Photo: DANIEL BOSQUE/AFP

On Wednesday June twenty second Spanish Prime Minister Pedro Sánchez introduced an extra discount in VAT on electrical energy costs.

Speaking to the Spanish parliament, Sánchez defined that the VAT discount, from 10 p.c to 5 p.c, could be permitted at a cupboard assembly this weekend.

But this isn’t the primary time that the Spanish authorities has taken direct motion to deal with skyrocketing electrical energy costs.

Last yr it additionally slashed the VAT price on electrical energy 21 p.c to 10 p.c to try to soften affect of rising electrical energy worth rises on customers going through worth will increase throughout the board.

Facing criticism for his authorities’s report on serving to customers, Sánchez blamed “a war at the gates of Europe” for the rises, and mentioned the most recent reduce will type a part of a package deal of measures to try to stem the consequences of inflation, which hit a staggering 8.7 p.c in May, the very best stage in Spain for many years.

READ MORE: Spain to cut electricity tax by half to ease inflation pain

But how a lot are you able to truly count on to avoid wasting in your electrical energy invoice following the information?

How a lot will I save?

While a reduce to the VAT price paid on electrical energy is welcome, in actuality it appears the distinction to electrical energy payments can be minimal.

According to specialists, decreasing VAT from 10 to five p.c will imply financial savings of round €4 a month for households with a median consumption (270 kWH per 30 days and a contracted energy of 4 kW) on the regulated market.

Let’s take a look at an instance. A family with consumption at 270 kWH per 30 days would have paid €95.43 within the final 31 days. If VAT had been utilized at 5 p.c, as will probably be underneath the federal government’s proposed reduce, their month-to-month invoice would have labored out €4.30 cheaper.

For comparability, if the federal government had not stepped in in any respect and no tax reductions of any form had been utilized, that very same receipt would have been €109.6. 

How a lot will it value the federal government?

Cutting VAT, though welcome and far wanted by most customers in the meanwhile, does come at a value. Officials from the Hacienda consider that decreasing VAT to five p.c will value the general public coffers as much as €460 million within the subsequent three months alone. 

Hacienda estimates that the federal government has to this point spent €3.8 billion on all tax cuts to decrease electrical energy payments.

Is it sufficient?

Is one other VAT reduce sufficient to recoup the distinction and negate rising costs? Simply put, if wholesale electrical energy costs (one thing the Spanish authorities has no management over) proceed to rise on the price they’ve been, the costs handed onto the buyer will probably make the cuts to VAT negligible.

At the beginning of June, the each day worth of electrical energy started at €210/Mwh, however by this week this Thursday it had already climbed to €272/mWH – a 29.5 p.c spike because the starting of the month equal to €62 additional on payments.

With no finish to battle in Ukraine or the volatility on the power market in sight, the Spanish authorities is trying to find methods to ease the burden on customers. Labour Minister Yolanda Díaz just lately proposed slashing the value of month-to-month public transit passes by 50 p.c and providing €300 to individuals hit hardest by rising costs.

READ MORE: Spain eyes €300 handouts for most vulnerable and further fuel reductions

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