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The executive will approve the VAT cut on electricity from 10% to 5% at this Saturday’s Council of Ministers meeting.
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Any savings on invoices will appear no sooner than next month and will depend on all approved measures and how the market evolves.
Pedro Sánchez noted that the Iberian cap on gas prices at the energy auction has started to apply since last Wednesday. After three days of rising electricity prices, the Cabinet is preparing to approve the VAT reduction on electricity from 10% to 5% as part of a new royal decree that includes actions aimed at softening the economic impact of the Ukraine conflict.
He underscored that this policy will be one of the coalition government’s tools to counter the surge in energy costs. He reminded listeners that last year the government reduced the VAT on electricity from 21% to 10%. While that cut was welcome, it did not fully prevent prices from climbing.
The government intends to tackle the issue on two fronts: first, by applying a cap on gas prices at 40 euros, and second, by introducing protections for households. The anticipated drop in electricity VAT is projected to affect public finances by 250 to 300 million euros.
What does the new discount in VAT on electricity mean?
The VAT reduction from 10% to 5% on electricity will be formalized in a royal decree on new anti-crisis measures and will be published in the Official State Gazette along with other provisions that already had approval from Congress. Consumers should not expect to see the benefit on their bills before next month.
The Minister of Finance and Public Administration, Maria Jesus Montero, stated that this measure will likely lower electricity costs for households. She argued that the government is delivering the most substantial reduction in history compared with previous administrations that raised VAT from 10% to 21%.
She added that the government will continue to support citizens by shaping tax policy to relieve living costs, while recognizing that the final savings depend on the absorption of the remaining measures and on daily movements in the wholesale energy market.
Regarding potential excise measures for electricity companies, the minister said officials are examining the fiscal options and that a formal decision will be announced once a preferred approach is identified. The dialogue continues as authorities monitor market dynamics and assess the most effective way to cushion households from price volatility.
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