Rewritten: North American-friendly overview of gas tax relief proposals and VAT debates

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Government considers cutting VAT on gas from 21% to 5%

The gas sector has pressed for tax relief to soften higher costs driven by the global energy squeeze. Over the past year, industry participants have welcomed President Pedro Sánchez’s plan to trim the value-added tax on gas revenues from at least 21% to 5% by the end of the year. Still, they describe this as only a first step and continue to push for more relief on other charges that appear on consumer bills.

Collaboration across the gas value chain—spanning transport and distribution networks to marketers—and large industrial users is pushing for broader tax relief. They argue for equal treatment with electricity customers, highlighting the heavier tax burden embedded in electricity bills, including VAT, generation taxes, and other energy levies.

Government now weighs a proposal to reduce VAT on gas from 21% to 5%

“The industry is glad the government is taking our call for lower VAT seriously. There had to be fair and symmetrical treatment compared with electricity usage. Going forward, the industry also wants to see the Special Tax on Hydrocarbons lowered on gas bills.” The association Sedigas represents large companies across gas’s entire value chain—transport, distribution, marketing, and related suppliers—and emphasizes the need for balanced policy measures.

Hydrocarbon Tax

Gas firms are seeking relief on the Special Tax on Hydrocarbons (IEH). At a minimum, the tax should align with the EU floor, which currently places the rate at EUR 0.65 per gigajoule (about EUR 2.34 per megawatt hour) for local and most industrial customers. EU rules allow a lower floor of EUR 0.30 per gigajoule (about EUR 1.08 per megawatt hour) for all member states.

The government has the authority to reduce the tax to the stated minimum without Brussels’ approval, but a formal sign-off would be required if Spain tries to drop the levy beneath that threshold. Sedigas notes that the European Commission has been encouraging member states to take steps to shield vulnerable consumers from energy costs.

Feijóo defends VAT on gas: “Government drags it down after critics”

Industry observers see rising electricity prices as unfair and argue the government should avoid penalizing gas customers through taxes, particularly given the surge in natural gas costs. Critics note that a prior proposal aimed to further reduce electricity VAT from 21% to 10%, then to 5%, last year, alongside pausing a 7% electricity generation tax and lowering the electricity levy to the EU minimum. Regulators responded by capping increases for regulated gas rates, known as the TUR (tarifa regulada), a measure that affects only regulated customers, not those free to choose suppliers. The TUR is reviewed quarterly and currently cannot exceed 5%, though wholesale market prices have pushed beyond that cap.

The measure is temporary and does not prevent rate hikes entirely; it simply delays some increases. In recent quarters, authorities began applying earlier increases on a deferred basis, partly to recover more than 200 million euros in charges that were not implemented in prior periods.

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