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Spain Will Collect 33% More For Electricity With The Highest VAT In EU

The price of electricity has begun to stabilize after several consecutive record days, a situation that has generated new controversies about the actions that the Government can carry out in favor of consumers.

And it is that, beyond the 10% VAT reduction for households that was approved just a few weeks ago and that will be in force until the end of the year, Spain continues to have the highest indirect tax in the European Union and will collect this year, according to the forecasts of the experts, up to 2,150 million euros more than in 2020.

It should be remembered that around 60% of the price that the consumer pays through the electricity bill corresponds to taxes . Production, CO2 emission rights, electricity tax, indirect energy and nuclear taxes and VAT.

Given the situation that was taking place a few weeks ago of continuous increases in the price of the megawatt hour, the Government decided to act on the latter, lowering the VAT for consumers with less than 10 kilowatts of contracted power from 21 to 10%.

This decrease represents a respite for the vast majority of households, although it does not apply to most places, such as bars, restaurants or hotels that, despite suffering the pandemic, must continue to face the payment of 21% of VAT, one of the most expensive in the entire European Union.

Far from these percentages are countries such as Portugal or Greece, whose tax on electricity is 6%, or Luxembourg, with 8%. Closer are others such as Germany, which is placed at 19% indirect tax on electricity consumption.

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According to the experts of the sector consulted by the Economist , the State will collect this year thanks to electricity generation about 8,500 million euros, which is 33% more than in 2020, or what is the same about 2,150 million more than raised in 2020 . And this despite the temporary reduction of VAT to 10% and the abolition, also temporary, of the production tax of 7%.

The wholesale market is unique and the same in the European Union and the price does not differ much from that of other countries. These experts point out that “where there are great differences between Spain and the rest of the European electricity markets is in taxes, charges, fees and the existence of a regulated tariff or PVPC”.

Contrary to what happens in other countries, the Spanish regulated tariff transfers all the volatility of the daily wholesale market to domestic customers . Currently, there are 20 million customers in Spain -which represent 90% of the energy consumed- who are not affected by the volatility of the wholesale market, as they have contracted their electricity in the free market at a fixed price for a period of one year or more, but the price increase does affect the rest: 10% of the energy consumed, which are small consumersthat are in PVPC (rate fixed by law) and that represent 10 million customers.

This is the opposite of what happens in neighboring countries (France, Italy, Portugal or the United Kingdom), which have fixed market prices for periods of between 3 months and 1 year using a basket of futures markets.

“If you have a system similar to that of the rest of the European countries (quarterly, annually), the PVPC customer would be paying the price set 1 year ago and not the current price influenced by CO2 and the price of gas in international markets, which would represent a lower bill by approximately 30% “, explain the sources consulted.

The cost of energy represents 27% of the bill for residential customers, while those that are not related to the supply – taxes, surcharges and others – account for almost 60% of the bill. In fact, only taxes represent around 33% of the electricity bill.

The price of electricity in the wholesale market has skyrocketed for two reasons – the rise in the price of gas and CO2 – but this has not only happened here, but also in other neighboring countries, such as Italy, France, Germany and the rest of Europe.

For every euro per MWh that gas rises , the cost of electricity increases by two, while for every euro per tonne that increases CO2 increases by 0.33 euros per MWh. The price of gas is set in international markets , but, as the sector recalls, it is the States that have taken measures to make the price of CO2 rise.

“The States of the European Union created the CO2 market to penalize the environmental damage of fossil energy, encourage investment in renewables and make energy without emissions more competitive,” they explain in the sector.

As the duties have been reduced to meet the objectives, the price, as it is happening, rises. Due to this increase in the price of CO2, the Spanish State will collect around 2,800 million euros , compared to 1,200 million last year.

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