IVA sales tax on electricity bills raised from 5% to 10% among new anti-crisis measures approved in Spain

Spain's Cabinet has approved the latest anti-crisis measures in a bid to continue combatting the impact of inflation and the energy crisis in the country following the war in Ukraine.

The meeting of senior ministers today (27 December) approved the extension of the anti-crisis plan for next year following much debate among politicians about whether or not to scrap energy rebates due to the cost to the state. It comes amid pressure for Spain to reduce the public deficit to the limit of 3% of GDP in 2024, required by European financial rules that come back into force next year.

Specifically, IVA (Spain’s sales tax) on electricity tariffs, which had been reduced to 5%, will rise to 10% from January and will remain at this level all year round, according to sources at the ministry for Ecological Transition. IVA on gas will rise to 10% in January from 5% and will return to the normal level of 21% after the first quarter, when the winter is over

Ministers agreed to partially extend some measures and start a progressive increase in the taxes that were lowered to reduce electricity and gas bills. Meanwhile, the elimination of of 4% IVA on staple foods (such as bread, flour, milk, cheese and eggs) will be maintained until June, and the IVA on oil and pasta will continue to be reduced from 10% to 5%.

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Currently, Spanish households continue to benefit from a 5% IVA cut on their electricity and gas bills. In addition, at least until 31 December, the special tax on electricity is also reduced to 0.5% and the tax on the price of electricity production is suspended. These current reductions result in a loss of revenue of around three billion euros per year, according to calculations by the Bank of Spain. The AIReF fiscal authority warned the government that Spain will only comply with the deficit limit in 2024 if the bulk of the package is withdrawn. But that introduces the problem of high living costs, as these are among the measures with the greatest direct impact on the consumer's pocket.

The government also agreed to maintain a ban on cuts in basic supplies such as electricity, water and gas, and the extension of the regulated rate TUR4 for community boilers. The so-called Iberian exception, which involves putting a cap on gas and which is in force until 31 December, will expire next year. This new package of measures is the eighth approved by the government since the Ukraine war started early last year.