New VAT cut from 21% to 5% for natural gas to 31 December 2022 likely to be prolonged into 2023
The Spanish government’s cut to the Value Added Tax rate on domestic natural gas from 21% to 5% may have to be extended beyond the planned year end deadline. This is according to a government minister as tax subsidy is due to start from the start of next month. It follows a previous electricity VAT rate cut still in place.
The cut will apply between 1 October until 31 December 2022.
Spanish inflation dipped in August to 10.4% from 10.8% in July. This was the highest level since the 1980’s.
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Domestic electricity rate cut from 10% to 5% as inflation hits 8.7% in May
Cut follows December 2021 reduction from 21% to 10% on electricity
Spain had extended to 30 June 2022 its temporary reduction in VAT on domestic electricity from 21% to 10%. The measure was first introduced in June until 31 December 2021. It was then first extended to April 2022.
Other European electricity VAT cuts have now been widely copied.
The rate reduction will apply to:
- Consumers on low-incomes and welfare support
- Supplies to households and small businesses based on a price ceiling of €45 per MWh in the marketplace.
The government has also suspended the electricity industry 7% tax, IVPEE, levied on producers for July, August and September. IVPEE tends to be passed on directly to the end consumers
European Commission derogation from reduced VAT rate rules granted
In setting the 10% rate, Spain was varying from the rules on reduced VAT rates contained within the EU VAT Directive. It sought initial permission for the second half of 2021. It has now applied for permission to extend the measure for the first four months of 2022.
Article 98 of the VAT Directive establishes that Member States may apply either one or two reduced rates. Reduced rates can only be applicable to the supply of goods and services in the categories described in the Annex III of the Directive. Nevertheless, Article 102 of the VAT Directive establishes that, after consultation of the VAT Committee, each Member State may apply a reduced rate to the supply of natural gas, electricity, or district heating.
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