Spain to reduce fuel VAT to 10% amid Iran war, SER reports

Spain plans a sharp cut to its value-added tax on fuel, dropping it to 10% from 21% to soften the economic fallout of the Middle East conflict, SER radio reported, citing sources familiar with the plans.

Madrid also intends to suspend the excise duty on hydrocarbons, a step that would immediately trim the price of diesel and petrol by between 0.30c and 0.40c per litre, the SER report said.

The government will also scrap the 5% tax on electricity consumption, according to the report.

A government spokesperson declined to comment ahead of a press conference to unveil the package, scheduled for 11am local time (10am Irish time).

On Wednesday, Italy reduced fuel excise by 25c per litre, while Germany is considering a support package that includes a windfall tax on oil companies.

The measures could help stop surging fuel costs from feeding into broader price rises but would mainly benefit private car owners, who tend to be wealthier, economist Antonio Gonzalez said.

Ministers said earlier this week that the full package will include aid for sectors most exposed to the crisis, adding that Spain’s strong renewable generation leaves the economy less vulnerable to oil price spikes triggered by the war.

Spain’s electricity prices have ranked among Europe’s lowest this year, helped by heavy rains replenishing hydropower reserves, robust wind and solar output, and nuclear generation that reduces dependence on gas compared with other countries.