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Lower VAT on electricity

The Value Added Tax (VAT) payable on electricity is reduced from the general rate of 21% to the reduced rate of 10%.

Good news for all small consumers! The Government has just approved a reduction in the VAT on electricity until the end of the year, as an extraordinary measure with the aim of reducing the impact of the increase in the price of electricity caused by the change in pricing that has been applied since the beginning of June.

Even though it is a compensatory measure to alleviate the increase in the bill due to the new electricity tariffs, it will mean a monthly saving of up to 6 euros per month for families and small consumers.

Who is affected by this VAT cut?

In order to alleviate the impact of the increase in electricity prices as a result of the application of the new tariffs (which we talked about in this article): New Electricity Tariffs 2021) the government has approved this Thursday in an extraordinary meeting of the Council of Ministers the reduction of VAT from the general 21% to the reduced 10%.

This VAT reduction will apply to all small consumers with contracted power of less than 10 kilowatts, provided that the average monthly electricity market price established by the distributors exceeds 45 euros per megawatt-hour.

For vulnerable consumers benefiting from the bono social de la electricidad, this discount will be maintained until the end of the year regardless of the average price of energy on the market.

How long will this VAT rebate last?

This reduction will be maintained until 31 December 2021. At that time, the government will re-evaluate the measure based on how gas and CO2 prices fare, as the finance minister explained.

How much will the savings be?

According to data from the Independent Authority for Fiscal Responsibility (AIReF), this reduction in VAT to 10% will mean savings of approximately 650 million euros for households and SMEs during 2021, equivalent to 6 euros per month per user for a total saving of 36 euros per year.

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