The Government lowers VAT on electricity to 10%

With the entry into force of the new 2.0TD electricity tariff still on the horizon, the Government has decided to approve a reduction of VAT on electricity from the current 21% to a reduced rate of 10%. This is intended to alleviate costs for families and small businesses.

The Government lowers the VAT on electricity to 10%.

With the entry into force of the new 2.0TD electricity tariff still on the horizon, the Government has decided to approve a reduction of VAT on electricity from the current 21% to a reduced rate of 10%. This is intended to alleviate the expense of families and small businesses.

To achieve this reduction in the electricity bill, the Government has launched a series of measures in three different areas of action:

  • VAT will be reduced from 21% to 10% for all those consumers with a contracted power of up to 10 kW. This affects the majority of households, since the power usually contracted is around 4-5 kW

    The new regulation will apply until the end of the year and as long as the monthly wholesale market price is above 45 euro megawatt-hours (currently at 82.5 euro MWh).

    SMEs will also be able to benefit from this reform. All those with a power of less than 15 kW will also see a reduction in the amount of their bill.
  • In the case of low-income groups, also known as vulnerable consumers, VAT will also be reduced from 21% to 10%.

    But, unlike the rest of the population, they will enjoy this measure regardless of the power they have contracted and the behavior of the price of electricity during the second half of 2021.

  • Finally, the tax on energy generation is momentarily suspended during the last quarter of the year.

    This 7% tax is borne by the electricity companies, but it indirectly affects the price of electricity, so its elimination will also mean a drop in the amount of the end customer's bill.

We are therefore talking about three measures that affect two different groups (consumers and electricity companies). With their approval, the impact on the electricity bill will be significant.

This VAT reduction will allow both domestic customers and small businesses to save between 11% and 13% on their next electricity bill.

According to FACUA estimates, families with average bills of 60 euros will be able to save up to 8 euros per month, which translates into more than 100 euros per year.

With these new measures enacted by the Government, consumers' electricity bills will be significantly and immediately reduced.

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