Spanish government activates €5.046 billion tax shield to cut fuel and electricity prices

The Council of Ministers gave the green light last Friday to a Royal Decree-Law in response to the consequences of the war in Iran, a package of measures mobilising over €5.046 billion aimed at containing the impact of the energy crisis on citizens’ wallets and on productive sectors.

As reported by the Ministry of Finance, the core of the intervention focuses on an unprecedented tax cut on fuel, electricity, and gas, in force until 30 June 2026. The Executive has opted for a scheme already tested in previous energy crises, but with specific reinforcement for transport professionals and the agricultural sector, who will receive direct aid of 20 cents for every litre of professional diesel consumed.

At the heart of the measure is the reduction of VAT on fuels from 21% to 10%, a cut that will represent estimated savings of €507 million for consumers. Added to this is a reduction in the Hydrocarbon Tax to the minimum level permitted by the European directive, which broadens the scope for price reductions for petrol, diesel, fuel oil and even kerosene.

The impact on the final price is significant: according to official calculations, 95-octane unleaded petrol, which was around €1.80 per litre on Thursday, will drop to €1.51 after the measures are applied, representing a saving of €16 for an average 55-litre tank. In the case of diesel, the price will go from €1.90 to €1.67 per litre, a relief that drivers will immediately notice at the pumps.

However, the real relief for the productive economy lies in the specific aid for professionals. Aware that freight transport and agriculture are the most vulnerable to fluctuations in the price of crude oil, the government has included in the decree a bonus of 20 cents for each litre of professional diesel purchased. This aid, which will be paid by the Tax Agency and the regional treasuries, will benefit transport companies, licensed self-employed workers, urban bus operators, and agricultural producers. For lorry drivers, who buy fuel in thousands of litres per month, this measure provides an essential buffer against the price surge stemming from geopolitical tensions in the Middle East and the blockade in the Strait of Hormuz.

The package is not limited to fuel. In the electricity sector, the government has reduced VAT to 10% for households with contracted power below 10 kW, covering practically all Spanish families. Added to this is a reduction in the Special Electricity Tax, falling from 5.1% to 0.5%, and the temporary suspension of the Tax on the Value of Electric Power Production (IVPEE), a measure that eases system costs and prevents the rise in wholesale prices from being fully passed on to electricity bills. The same VAT cut to 10% is extended to natural gas, briquettes, and pellets, thus helping households better manage potential energy fluctuations arising from the armed conflict in the Middle East.

Beyond the immediate social shield, the Royal Decree-Law incorporates a set of measures aimed at the energy transition and efficiency, including deductions in personal income tax (IRPF) for purchasing electric vehicles, bonuses in the Property Tax (IBI) for solar installations, and freedom of amortisation in Corporate Tax for investments in charging points and self-consumption. The government presents this package as a comprehensive response to the social demand to contain inflation, aware that geopolitical tensions in the Middle East show no signs of abating. With most measures in force until 30 June, the Executive reserves the possibility of extending or reinforcing the aid if the crisis persists, while lorry drivers, self-employed workers, and families breathe in time with a tax shield that, this time, has arrived with concrete figures and immediate effects on the final price of energy.