Reducing the value-added tax on electricity to 10% starting today to limit the rise in prices

Reducing the value-added tax on electricity to 10% starting today to limit the rise in prices

It’s official now. The VAT on the electricity bill will return to 10% in July, after a rise in electricity prices, which led to the shutdown of electricity in June at an average of 56.08 euros on the wholesale market, 84% more than the previous month and four times more expensive than in April, the cheapest month in the date. At the same time, the special tax and the tax on electricity production rise, returning to their original rates of 5.11% and 7%, respectively.

The government decided at the end of last year to impose a reduced value-added tax of 10% on the receipt of light throughout the year 2024, provided that the price of a megawatt-hour in the wholesale market exceeds 45 euros. If it remains below this threshold of EUR 45, the original VAT of 21% will apply in the following month, and if it remains above this reference, the reduced VAT of 10% will apply.

After four months of 21% VAT, the average wholesale price in June rose to 56.08 euros per megawatt-hour, an increase of 84% on the previous month, according to data published by the Iberian Market Operator (OMIE). It is therefore above the reference limit of 45 euros, which means a decrease from 21% to 10% of VAT on electricity bills for July.

28 million consumers

This change will affect most of Spain’s 28 million small consumers, both those with a free rate (19.6 million) and those with a regulated rate, known as the Small Consumer Voluntary Rate or PVPC (8.5 million). In addition, the reduction of the rest of the fees that affect the electricity bill ends this Sunday. What this means is that the special tax on electricity will rise from 3.8% to 5.11%; while the tax on the value of electricity production that affects electricity companies and which they return to users through the bill, will go from 5.25% to 7%.

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This tax difference could mean reducing the electricity bill for consumers by 4 euros per month, in the case of a user whose monthly consumption is 190 kilowatt-hours, at a fixed rate of 0.14 euros per kilowatt-hour, according to the comparison. Selectra offers home services. The user in the example will go from paying €50.89 in June (21% VAT and 3.8% electricity tax), to paying €46.84 in July (10% VAT and 5.11% VAT).

The reason for the increase in the cost of electricity last month is the lack of wind blowing and the increase in the cost of generation with water, which is common at this time of the year when there is an abundance of reservoir water, but there is no urgent need to extract it, which leads to lower prices.

Olive oil tax drops to 0% today

As of Monday, July 1, the VAT on olive oil will also decrease, which will remain at 0% until next September 30, as will the rest of the basic foods, such as bread, eggs, vegetables or fruit. In addition, VAT on pasta and seed oils (such as sunflower) will remain reduced at 5% until October 1.

In the last quarter of the year, the tax on basic foodstuffs (including olive oil) will rise to 2% until the end of the year; While the percentage in pastes and seed oils rises to 7.5%. From January, the executive expects all products to regain their original duties – of 4% in the case of basic products and 10% for pasta – with the exception of olive oil, which will become part of the food group at a significant discount. Instead of the traditional 10% to which it was subject.

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According to the National Institute of Statistics, it ended 2023 with an inflation rate of 3.5%, less than half the rate recorded in 2022, which reached 8.4%, due in particular to the costs resulting from the war in Ukraine. In 2024 it will be 3.6%.

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