A FRESH reduction in value-added tax (IVA) on electricity has been announced in a bid to reduce costs to Spanish households, taking effect from Saturday this week (June 25).
Until earlier this year, IVA on the mains utility was at the maximum of 21%, the standard rate that applies to most goods and services in the country other than certain basics which attract the mid-range rate of 10% or bottom level of 4%.
Amid soaring costs of fuel worldwide, Spain's government opted to reduce IVA on electricity to 10%, offering some relief to households and small businesses, but as the price of power continues to escalate, it has now decided to cut the rate to 5%.
President Pedro Sánchez and his cabinet have long been looking at ways to reduce energy bills – and fuel across the board – given that this is causing spiralling price-led inflation.
Supermarket bills are now approximately 30% higher than in autumn 2021, largely as a result of more expensive fuel – electricity used by stores and in the production and manufacturing stages, and petrol and diesel for transporting goods, are being passed onto the consumer.
This is especially the case where adverse winter and early-spring weather conditions have affected local crops, leading to these having to be shipped in from other parts of the country.
In terms of fiscal measures, reducing IVA is the government's only weapon left against rocketing electricity bills, now that it has also cut tax on other elements of household energy – otherwise, consumers are at the mercy of wholesale power prices dictated by the cost per barrel of crude oil.
If these wholesale prices continue to rise globally, they could wipe out the effect of the IVA reduction, but in the meantime, the latter will at least help contain consumers' bills and stop them getting any higher.
Meanwhile, the next three years will see Spain's main electricity board investing heavily in wind power, gradually increasing the percentage of energy supplied to the end user from renewable sources that are not subject to the same price volatility as fossil fuel, nor have to be sourced from overseas territories which could be vulnerable to political and climate upheaval.
In practice, the IVA cut from 10% to 5% will not make a massive difference to households, especially when considering the cost to the government of implementing the move – between €430 and €430 million over the next three months – but the accrued saving will prove beneficial.
According to the National Markets and Competition Commission (CNMC), an average household, taken as being one with two to four members, will be paying approximately €18.60 a month less on electricity than they would have been if IVA was still at 21%.
Before the first rate cut from 21% to 10%, at current prices, the average bill for a 31-day month based upon a consumption of 270 kilowatts per hour (kwH) and a power level of 4kw would have been €109.60, if their supply was direct from national energy board Iberdrola and not through a private-sector commercial retailer.
Read more at thinkSPAIN.com