The VAT on electricity and natural gas will return to 21% on June 1st, after more than a year of reduced rates implemented to mitigate the impact of the energy crisis linked to the war in Iran . This change will significantly affect the bills of millions of households and businesses, who will see a substantial part of the so-called tax shield disappear.
This decision comes at a time when, paradoxically, energy prices have fallen. The latest Consumer Price Index (CPI) data shows that inflation moderated in April to 3,2% year-on-year , thanks mainly to lower electricity and natural gas prices. It is precisely this price improvement that has triggered the clause requiring the early withdrawal of tax breaks.
Why is the VAT on electricity and gas rising again to 21%?
The Ministry of Economy, Trade and Business has confirmed that the extraordinary tax measures applied to electricity and natural gas will be phased out starting June 1st . This means that the VAT on electricity, natural gas, briquettes, pellets, and firewood will no longer be at a reduced rate and will return to the standard 21% rate.
The key lies in a deactivation clause included in the latest anti-crisis decree , approved in March in response to the war in Iran. That text stipulated that tax cuts could be brought forward if the year-on-year price increase for certain energy products remained below 15%. According to the latest CPI data, this condition is easily met in the case of electricity and natural gas.
In April, electricity prices fell by 4,3% and natural gas by 9,6% compared to the same month last year. In other words, not only have they stopped rising, but they are now experiencing negative growth rates. With these figures in hand, the government believes the energy market has returned to sufficient normality to begin removing the tax shield on these supplies.
Sources at the Ministry of Economy insist that "the drop in electricity and natural gas prices allows us to begin phasing out" the VAT and Special Tax on Electricity reductions. The official interpretation is that the measures have achieved their objective of buying time and cushioning the initial blow of the crisis, but that they cannot be maintained indefinitely without taking into account the actual evolution of prices and public finances.
Which taxes exactly change from June 1st
The government's move is not limited to VAT. From June 1st, the regular rate of the Special Tax on Electricity , which was practically eliminated during the worst months of the crisis, will also be reinstated. This tax will return from the previously applied 0,5% to its standard rate of 5%, further increasing the tax component of electricity bills.
In practice, the fiscal shift translates into three major changes for domestic energy supplies:
- Electricity It abandons the reduced VAT rate and returns to 21%, with the Special Tax on Electricity returning to 5%.
- Natural gas It also returns to the standard VAT rate of 21%, after months of applying a reduced rate.
- Solid biofuels for domestic use (briquettes, pellets and firewood) also recover the 21% VAT, which will increase the cost of this type of heating.
Despite this tightening of measures, the Ministry is maintaining some aspects of the economic shield until the end of June . The suspension of the Tax on the Value of Electricity Production will remain in effect until June 30, preventing another tax from being passed on to consumers through the generation cost. This acts as a partial buffer for the system, although it doesn't fully offset the VAT-related increase.
The government points out that “the response plan has resulted in a moderation of nearly one percentage point in overall inflation .” In fact, according to their estimates, without the measures, fuel inflation would have been around 29% year-on-year, compared to a much more contained effective rate thanks to the tax breaks in place.
Impact on the bill: how much electricity and gas can increase in homes
The big question for any consumer is straightforward: how much will this change affect their household bill? Analysts agree that the effect will be immediate starting in June, especially on electricity bills. The return to the 21% VAT and the 5% excise tax will translate into a significant increase in the total amount, even if the price per kilowatt-hour on the wholesale market remains relatively low.
Estimates from various industry experts suggest that the average electricity bill could increase by around 15% in June due to the tax effect alone. In practical terms, this could mean an extra cost of about 8 or 9 euros per month for a household with average consumption, although the exact figure will depend on each user's contract, contracted power, and usage habits.
In the case of natural gas, the impact will be somewhat less but equally noticeable. The return of VAT to 21% could mean an increase of around 9-10% in gas bills , according to initial market projections. Since it is a highly seasonal supply, the impact may be more limited in the height of summer, but it will be strongly felt if prices remain the same when the heating season returns.
Behind these figures lies a structural reality: the wholesale price of energy only accounts for a portion of what the end consumer pays . Various studies estimate that generation costs represent around 40% of the household electricity bill, while the remainder is covered by network tolls, system charges, commercial margins, and taxes. Although electricity is now cheaper at the wholesale level thanks to the rise of renewable energy , the return of standard tax rates could offset much of that savings.
Therefore, many consumers may feel that, despite headlines about cheaper energy, their bills aren't decreasing at the same rate . The end of tax breaks reinforces this perception and brings the focus back to the debate about how the cost of the electricity system is distributed among energy, networks, charges, and taxes.
Inflation is moderating, but the price problem persists.
The context for this fiscal decision is the recent evolution of the CPI. In April, the overall index stood at 3,2% year-on-year , two-tenths of a percentage point lower than in March. Core inflation, which excludes fresh food and energy products, fell to 2,8% , confirming a certain easing of underlying tensions in the Spanish economy.
According to data from the National Statistics Institute, the drop in electricity and natural gas prices has been one of the main factors contributing to this relief . The performance of package holidays, which rose less than a year earlier, also helped. However, fuel prices continued to rise, with notable inflation in diesel and gasoline, driven by geopolitical uncertainty.
This pattern is not uniform across the country. Regions like Madrid, Castile and León, and Castile-La Mancha are registering inflation rates above the national average , while others, such as Extremadura and Asturias, are experiencing more moderate levels. Even so, in all autonomous communities, households continue to feel the rising cost of living, albeit somewhat more slowly than during the worst moments of the inflationary crisis.
Breaking down spending by category, transportation, hospitality, and some food items stand out as the areas that put the most strain on household budgets. Restaurants, accommodation, alcoholic beverages, tobacco, insurance, and financial services show year-on-year increases above the average. Although the rise in the cost of food has moderated, products such as certain vegetables, green legumes, eggs, and fish remain significantly more expensive than last year.
The Ministry emphasizes that the "renewable energy shield" and the package of response measures have been crucial in preventing much higher inflation. In fact, official calculations indicate that the aid has reduced fuel inflation by more than 16 percentage points compared to the theoretical scenario without intervention, and has contributed nearly one percentage point to moderating overall inflation.
Fuels, the big exception: tax cuts continue
While electricity and gas return to standard taxation, fuels become the exception, maintaining subsidies at least until June 30. The same decree that allows for the early withdrawal of discounts on electricity and gas stipulates that measures related to gasoline, diesel, and biofuels can only be deactivated when their year-on-year price variation falls below 15%.
April data shows that "fuels and lubricants for personal vehicles" remain above that threshold . Diesel, in particular, is registering inflation close to 28%, while gasoline is at more moderate, but still significant, rates. This behavior, closely linked to the international price of oil and the tension in the Middle East, has led the government to extend the relief package at the pumps.
This maintains the reduced VAT rate of 10% for gasoline, diesel, and biofuels , as well as the reduced rates of the Hydrocarbons Tax and the partial refund for professional diesel. The stated objective is to mitigate the impact on freight and passenger transport, sectors particularly sensitive to rising crude oil prices, and to contain the transmission of these costs to the rest of the economy's goods and services.
The Ministry of Economy insists that, without this aid, fuel inflation would have been much more severe . Continued fiscal support is considered key to preventing a further spike in the CPI at a time when the European Central Bank is trying to consolidate the path of price moderation across the eurozone.
In any case, the timeframe for these measures is limited. The anti-crisis decree itself sets June 30 as the deadline for the current fuel subsidy package , unless a new decision by the Council of Ministers extends its validity or introduces a different design. The evolution of oil prices and the geopolitical situation in the coming weeks will be decisive.
What aid remains available for the most vulnerable households?
Despite the phasing out of the tax shield on electricity and gas, the government has opted to maintain several support measures aimed at groups particularly vulnerable to rising energy costs. The most significant for low-income households is the social electricity voucher, which will continue to offer enhanced discounts at least until June 30th.
Specifically, vulnerable consumers receive a 42,5% discount on the regulated portion of their electricity bill , while those considered severely vulnerable benefit from a 57,5% reduction. These subsidies act as a safety net for those who struggle to afford energy costs and have become a key tool in the government's social policy in this area.
Alongside the social electricity tariff, specific aid will continue to be provided to farmers and transporters , two sectors particularly affected by rising energy and fuel costs. In their case, tax breaks, partial tax refunds, and direct support programs are combined to maintain their competitiveness and prevent a massive pass-through of costs to the price chain.
The Ministry emphasizes that the international context remains marked by significant uncertainty , and that it will therefore continue to "monitor price trends" in close collaboration with social partners and various economic sectors. The aim is to adjust the level of protection based on how inflation, the energy market, and geopolitical tensions evolve in the coming months.
At the same time, the gradual withdrawal of aid also stems from budgetary concerns . The tax breaks applied to energy mean lower revenue for the State, which limits the fiscal space available for other public policies. The Government argues that, now that prices have begun to moderate, it is reasonable to withdraw part of the economic safety net to ensure the sustainability of public finances and to be able to focus efforts on the most vulnerable groups.
With all these factors in play, Spanish consumers face the start of summer with a mixed outlook : overall inflation is gradually easing, but the normalization of electricity and gas taxes threatens to erode much of the relief achieved. Meanwhile, fuel prices will continue to receive extraordinary support, at least for a few more weeks, in an international context that remains anything but stable.
