The reduction of VAT on electricity due to the war expires with the moderation of prices

MadridThe moderation of energy prices and, therefore, of the inflation rate in April and May —when it stood at 3.2%— implies that the Spanish government's shock plan approved in March for the war in the Middle East will follow the planned calendar. Despite the context of uncertainty regarding the evolution of the conflict, from this Monday, June 1, some of the tax reductions that have been applied to energy until now will disappear, while other measures will remain until June 30. In any case, families and companies will already notice it in what they pay for electricity and gas.

Specifically, the VAT applied to electricity and natural gas, as well as the VAT on briquettes, pellets, and firewood, will return to 21%, and the reduced rate of 10% that was in force until now will be left behind. Furthermore, in the case of electricity, the special tax will recover the usual rate (5.11%), and the reduced rate of 0.5% approved by Pedro Sánchez's executive will disappear. The tax on energy production, which is 7%, is also being reinstated.

The Spanish government explains that, even though part of the shock plan approved to alleviate the economic effects of the war is expiring, a "follow-up" of the economic and social impact of the war in Iran continues, as well as analyzing the measures adopted in conjunction with social agents and affected sectors to evaluate their continuation or adaptation beyond June 30, according to sources from the Ministry of Economy. "The Spanish government's plan is fulfilling its main objective, which is to cushion the impact of the war on inflation and the purchasing power of households," they defend from the ministry led by Carlos Cuerpo.

Regarding fuels, the VAT reduction will be maintained throughout the month of June for gasoline and diesel as well, which has resulted, according to Spanish government estimates, in an effective reduction of about 30 cents per liter when filling the tank. For professional transporters and the agri-food sector, there is an additional direct aid of twenty cents per liter for the purchase of fuels and fertilizers and an 80% subsidy on electricity tolls for the electro-intensive industry.

The truth is that while the price of oil continues to put upward pressure, affecting consumers at the gas station, the prices of food and non-alcoholic beverages have remained flat, according to the latest data from the National Statistics Institute (INE). This, coupled with a moderation in the prices of electricity in the State, clothing and footwear, has favored a stabilization of general inflation.

However, the aid to vulnerable consumers will continue in force throughout the year with extraordinary discounts on the social electricity tariff – 42.5% for vulnerable and 57.5% for severely vulnerable – and the prohibition of cutting off water and energy for non-payment to households with greater difficulties.

Constant monitoring

"In the coming weeks, new meetings will be held with social agents and the [most affected] sectors to calibrate the support measures that may be necessary [to maintain] once the previous deadline expires," explain sources from the Ministry of Economy. The uncertain evolution of the conflict leads, in fact, to permanent and mandatory monitoring of prices. If the war in Iran becomes entrenched, organizations such as the Bank of Spain have warned that the situation can translate, precisely, into upward pressure on prices.