How does the reduction of VAT on electricity to 10% affect me?

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How does the reduction of VAT on electricity to 10% affect me?

How does the reduction of VAT on electricity to 10% affect me?


Energy Rates Sector Bills 5


In today's article we are going to answer one of the questions that has given rise to most questions in recent days from our customers, but also from the general public. Why has this measure been taken, how long does it apply, what does it consist of, who is affected by it, and how does it affect? Let's find out.

What is it and why does it apply?

The 10% reduction in VAT is an extraordinary measure approved by the Spanish Government in response to "the situation generated by the increase in electricity prices", according to the Agencia Tributaria website. The aim is to reduce the amount of the electricity bill for thousands of Spanish households.

In addition to this measure, the government also approved the temporary suspension of the Tax on the Value of Electricity Production (IVPEE), thus eliminating the 7% that was in place. This tax applied a levy on energy production activities in the electricity system, as well as the incorporation to it, and affected electricity producers, but not consumers directly. In 2018 the government already applied a moratorium on the IVPEE for 6 months.

Who is affected?

This new measure affects all households with a maximum contracted power that does not exceed 10kW, although it will only be effective if the price of the previous month has exceeded 45 €/MWh. This, according to the Ministry of Finance, in practice means that all households in the country will be affected, as the average contracted power is 4.1 kW. Total, more than 25 million customers. From another perspective, this measure is estimated to affect just over 70% of companies, according to the Minister of Finance, María Jesús Montero.

The price threshold is set by the forecast for the first half of this year, which was 45 €/MWh. However, for the second half of the year, the forecast has increased the price to €83.32/MWh, which is why the government has taken action.

In addition, those who are eligible for the social bonus and those who are recognised as being in a condition of severe vulnerability or at severe risk of social exclusion will also benefit, in order to respond to "situations of energy poverty of the most vulnerable consumers". All of this, regardless of the electricity price set by the wholesale market and the contracted power.

In the case of the suspension of the IVPEE, the beneficiaries are all those on the pool and those on the indexed tariff of the free market, i.e. those on the hourly tariff.

When does it come into force?

The measure was approved on 24 June and has been in force since 26 June, when it was published in the BOE.

The suspension of the IVPEE has been a reality since 1 July.

When do these measures end?

They will be in force until 31 December, although they can be reviewed, as the market will then be re-evaluated and the option of extending them will be studied if the price of gas and the CO2 emissions allowance have not normalised.

In the last article we learned that the reason for the increase in the price of gas and the CO2 emission allowance was the cause of the increase in electricity prices in June.

How much money do I save?

The Independent Authority for Fiscal Responsibility (AIReF) points out that the overall saving will be 650 million euros up to 31 December. If we look at it individually, the calculation indicates that the savings per person will be between 6 or 7 euros per month per user, i.e. between 35 and 40 euros for the rest of the year.

In the case of those benefiting from the suspension of the IVPEE, they will save around 3 euros per month. In total, with the VAT reduction, the total savings amount to around 10 euros per month.

The suspension of the IVPEE means a 3% reduction in the bill for individuals and up to 6% for SMEs.

Sources:

  • El Periódico de la Energía
  • Kelisto
  • Ministerio de Hacienda
  • Cadena SER
  • La Vanguardia
  • El País

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