Royal Decree-law 17/2022, published in the BOE on 21 September, cuts VAT on natural gas, pellets, briquettes and firewood from 21% to 5% between 1 October and 31 December 2022.
On 20 September 2022 the Council of Ministers approved Royal Decree-law 17/2022, published in the Official State Gazette (BOE) on the 21st and in force from the 22nd. It cuts VAT on natural gas from 21% to 5%, the minimum rate EU rules allow. The cut applies from 1 October to 31 December 2022, and the government presents it as a response to the rise in gas prices as winter approaches.
What is being cut
The 5% rate applies to deliveries, imports and intra-EU acquisitions of natural gas (Article 5) and, for the same period, to those of biomass briquettes and pellets and firewood (Article 6) when used in heating systems. The decree applies it to all natural gas consumption, not just that of vulnerable households, and to every component of the bill.
The cut does not cover liquefied petroleum gas (LPG), that is, butane and propane. Vice-president Teresa Ribera explained on the day of approval that the list of products in the EU VAT directive that can have a reduced rate includes electricity, natural gas and wood, but not other gases, and that the list could change if the European Commission amends it.
For individuals, the change shows up directly on the bill. For businesses that can deduct input VAT, the effect is mainly on cash flow, because VAT on gas is paid and then recovered in the VAT return; what changes is the amount advanced.
What else the decree approved
The same royal decree-law includes measures for the electricity sector. It lets industrial cogeneration plants temporarily give up their regulated remuneration to join the gas adjustment mechanism, the so-called Iberian exception, with the aim of restarting those that stopped in August: according to the decree itself, more than half of installed cogeneration capacity stopped producing that month. It also creates an active demand response service, under which industrial consumers are paid to reduce their electricity use when the system needs it, makes transmission grid capacity more flexible and speeds up permits for renewable projects.
The decree also reopens the deadline to request a mortgage moratorium for those affected by the La Palma volcanic eruption. And it adds to the measures already in force: VAT on electricity at 5%, the special electricity tax at 0.5% and the suspension of the 7% generation tax, which according to Ribera have saved consumers more than €10,000 million.
What to bear in mind
It is a change in a tax rate, not a subsidy: it is applied on the bill without any need to apply for it. When the bills for consumption from October onwards arrive, it is worth checking that the supplier applies 5% and not 21%. The government estimates that consumers will save about €210 million in total.
The measure is temporary. Vice-president Ribera said the government will monitor developments and that, if necessary, it could extend the tax cuts into next year. Without an extension, VAT on gas would return to 21% on 1 January 2023, and it is worth allowing for that when budgeting for the winter’s heating costs.
The cut eases the bill for the last quarter of 2022; what happens afterwards depends on a possible extension.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
