Spanish Government Will Evaluate Whether To Extend VAT Reduction On Electricity

The Council of Ministers has given the green light to the reduction of VAT on the electricity bill from 21% to 10% for all consumers with up to 10 kilowatts of contracted power until the end of the year, when the Government will evaluate the possible extension of this measure.

In addition, the Executive has suspended for three months the 7% tax on electricity generation , assumed by companies and passed on to customers through the receipt. Both measures have been incorporated into a royal decree law that will enter into force on Saturday , according to government sources.

This was announced by the Minister Spokesperson and Head of Finance, María Jesús Montero , and the Fourth Vice President and Minister for the Ecological Transition, Teresa Ribera .

The price of electricity in the wholesale market to stand close to 90 euros on average so far in June due to the evolution of gas prices in international markets and an increase in the prices of emission rights of CO2 . The price of electricity represents about 30% of the electricity bill, therefore, according to the Government, both measures will entail a reduction of more than 10% of the bill.

At the end of the year, the Government will analyze the evolution of the price of electricity , as well as the effect of other measures already announced by the Executive that intend to lower the cost of the receipt, such as the draft bill to reduce the extra benefits of nuclear power plants and hydroelectric plants that are expected to be approved in “autumn”, and the comprehensive taxation review that is being addressed by the group of experts from the Ministry of Finance .

“The Government will reevaluate the energy cost situation on December 31 and it will be at that time that the corresponding decision is taken always thinking of the general interest,” added Montero.

The Minister of Finance recalled, however, that taxation is aimed at “strengthening the public service and guaranteeing disposable income for middle-class families.” In addition, he added, Spain communicated to the European Commission that this reduction will be “temporary” and to maintain it over time they must ask for its authorization.

“They know that this country always has warnings from the European Union of being abusive use of reduced VAT , I am not saying in relation to electricity, but in the whole map that makes up the VAT,” he added.

The Government will approve this Thursday to lower the VAT on electricity to 10% until the end of the year
The 10% VAT , as the Government had already announced, will be applied to all consumers with a power lower than 10 kilowatts provided that the month before billing the megawatt is above 45 euros. Since January, the average monthly price of a megawatt in the wholesale market has been 60.17 euros; 28.49 euros in February; 45.44 euros in March; 65.02 euros in April and 67.12 euros in May.

Its entry into force will take place this Saturday, which will cause that there are consumers who receive the invoice of ‘June’ with a VAT of 10% and others of 21%, since it depends on the closing of the billing period , that is, if the invoice It is issued on the 28th, they will have a reduced VAT, but if it is issued on the 25th it will be recorded with the general rate.

This VAT reduction will mean a saving of 857 million euros , according to Montero. A figure that does not affect 2021 because there is a lag in the receipt of the invoice with respect to the current year, therefore, the last months are not allocated to this year but to the next. Thus, 566 million are charged in 2021 and the rest will pivot on next year’s budget.

The Fourth Vice President and Minister for the Ecological Transition and the Demographic Challenge Teresa Ribera appears before the Commission for the Ecological Transition and the Demographic Challenge of the Congress of Deputies.

Teresa Ribera: “We must alleviate the bill for families and the industry”
Except for this difference in the period corresponding to the sixth invoice of the year , the reduced VAT will affect practically all households (the average domestic consumer is 4.1 kilowatts of power) and 75% of companies , according to Montero.

The National Federation of Self-Employed Workers Associations (ATA) ensures that most self-employed workers will be left out because they have more than 10 kilowatts contracted. However, in the case of companies, these are deducted the tax a posteriori.

Furthermore, in the case of social bonus recipients considered ‘ severe vulnerable consumers ‘ or at risk of social exclusion, they will have a reduced VAT until the end of the year regardless of the wholesale market price.

This VAT reduction will mean a “saving” of 857 million euros for consumers, in the words of Montero. A figure that does not affect 2021 because there is a lag in the receipt of the invoice with respect to the current year, therefore, the last months are not allocated to this year but to the next. Thus, 566 million are charged in 2021 and the rest will pivot on next year’s budget.

On the other hand, the suspension of 7% of the tax on the value of electricity production , which was already carried out in 2018 for six months, will take effect during the third quarter of this year. This will affect the price of the invoice around a 5% reduction , according to Montero. And it will mean a lower collection of 400 million that will not affect the public deficit but only the electricity sector.

The royal decree also includes a provision of an additional 100 million euros to offset the CO2 from the electrointensive industry that had previously received 78 million euros.

Likewise, the Executive has adopted other additional issues related to the deployment of new renewable facilities by establishing “new criteria” for access to electricity grids at the local level in order to reinforce the “control, solvency and coverage” of the renewable in the different territories.

Thus, the tenders held to grant access to the electricity grid will include temporary criteria that prioritize the most mature projects , criteria related to generation technology and its integration into the electricity system, and innovation the case of plants of less than 30 megawatts.

In addition, they may be complemented with other social and economic criteria linked to the local sphere, such as the generation of employment, the impact on the industrial value chain or the participation of investors, companies and administrations; Furthermore, the existence of mechanisms to reinvest profits in the area where the facilities are located will be assessed, something similar to what is already happening in the new renewable energy auctions.

What is the best market for electricity, free or regulated?
On the other hand, as announced by Minister Teresa Ribera , a measure related to electricity generation in the territorial sea has also been included to provide legal certainty to the sector with a view to the deployment of these technologies and the planning of offshore energy.

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