This is how the VAT reduction on gas from 21% to 5% will affect you

Cup by cup.

Thomas Osborne
Thomas Osborne
01 September 2022 Thursday 09:43
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This is how the VAT reduction on gas from 21% to 5% will affect you

Cup by cup... No, no one is going to get rich with what they manage to save on the gas bill from next October, when the Government will apply the VAT reduction levied on this popular source of energy in Spanish homes from the current 21% to 5%, as announced this Thursday by the Prime Minister, Pedro Sánchez, in communion with the public request of the opposition leader, Alberto Núñez Feijóo. However, the reduction is no small feat either and will give the domestic economy a break.

The first thing to keep in mind is that the savings will be fixed - that 16% that comes from the subtraction of the two tax rates - and, in principle, limited in time. Since, as in the case of the VAT reduction on the electricity bill or the subsidy of 20 cents per liter of gasoline and diesel at gas stations, December 31 is the deadline, even if the Government does not rule out extending these measures as of 2023.

As in these two reductions applied - electric VAT and fuel subsidy - the gas VAT reduction will not be enough to cover a minimum part of the price increase that has been suffered as a result of the current energy crisis. In fact, the comparison between the average price of gas between 2020 and 2021, before the war in Ukraine, showed an increase of 361%, according to data from the National Commission for Markets and Competition.

This 2022, in the retail market, the 6.4 million households with a gas bill in the free market have seen how the revisions of the contracts of the marketing companies prior to winter are assuming increases between 50% and 100% that in some cases they reach 200%.

But there is still more: in the Iberian Gas Market, which regulates rates in Spain, the price per kWh stands at around 218 euros at the end of August. The market forecast is that it will reach 269 in 2023. That 16%, therefore, will be nothing more than palliative care for the pocket. Of course, less gives a stone.

According to calculations by the consumer organization Facua, the effect of the reduction on a user with a monthly consumption of 400 kWh, who currently pays an average of 35.92 euros, will be a new bill of 31.17 euros from October. Of course, in the event that the rates in force since July are maintained. For a consumption profile of 800 kWh/month, the bill would go from 67.76 euros to 58.80 euros.

This association urges the Government to consolidate this reduction in VAT on electricity and gas bills, compensating for the loss of State income through direct taxes on companies that benefit from this price increase. In fact, the Minister of Finance and Public Function, María Jesús Montero, has indicated this Thursday that the public coffers will stop entering some 190 million euros between October and December of this year due to the reduction.