Spain to cut VAT on gas to help with soaring prices

Spain’s government has unveiled plans to cut VAT on gas this autumn to help people cope with soaring inflation.

Tax on natural gas will initially be reduced from 21% to 5% from October until the end of the year, Prime Minister Pedro Sánchez announced on Thursday.

“As we enter autumn and winter, it seems reasonable to try to lower the heating bills,” he told Cadena Ser radio, adding that the measure could be extended into 2023 “if the difficult situation we are going through lasts”.

The move will bring gas VAT in line with electricity VAT, which has been capped at 5% since June to limit the impact of inflation on purchasing power.

The Spanish government is facing a year-on-year inflation rate of more than 10%, driven by energy prices amid the war in Ukraine.

The year-on-year inflation rate in Spain has been above 10% since June, for the first time since the 1980s.

According to the government, it should fall by the end of the year but remain high, with an average level of 7.8% expected in 2022.

Spanish Economy Minister Nadia Calviño has welcomed the slowing inflation rate but has repeated warnings because “there is a lot of uncertainty due to the war” in Ukraine.

In recent months, Madrid has increased the number of aid plans to try to compensate for the effects of inflation on households and businesses, notably with subsidies on fuel and transport, at the risk of seriously undermining public finances.

Like Spain, several European countries have announced temporary cuts in VAT on gas in recent weeks, such as Germany, where the rate has been reduced from 19% to 7%, and Italy, which has also capped it at 5%.