What does the VAT cut on electricity, gas, and fuel involve?

Among the Government's anti-crisis measures, one of the most talked about is the reduction of taxes on essential utilities. The goal is for the savings to reach consumers immediately, offsetting the rise in wholesale prices caused by the instability in the Persian Gulf.

The VAT cuts are linked to the CPI; therefore, if during the month of April the variation in the CPI for electricity, gas, and fuel does not exceed the previous year's figure for the same month by more than 15% according to INE data (i.e., April 2025), the reduction will cease to be effective from June.

Cut in electricity VAT from 21% to 10%

Regarding electricity VAT, we have an article where we take a detailed, point-by-point look at this measure.

In short, VAT on the electricity bill is reduced from 21% to 10%. This regime applies to all contracts with a contracted power of less than 10 kW, which covers practically all households in Spain. At Endesa, we estimate that the savings could average around €8 each month. 

Cut in gas VAT from 21% to 10%

VAT on natural gas also sees a decrease from 21% to 10% for all consumers. Likewise, this reduction is also extended to other plant-based thermal fuels such as briquettes, biomass pellets, and firewood, to cover more domestic heating alternatives.

Cut in petrol and diesel

The VAT cut for petrol and diesel is perhaps the most anticipated measure for those who rely on a vehicle for their day-to-day lives. VAT on fuels is similarly reduced to 10%, an exceptional decision that, added to the reduction of hydrocarbon taxes to the minimum permitted by European regulations, seeks to contain the rise in the price of petrol and diesel at service stations. This Government aid envisages an average reduction of around 30 cents/litre.

How do the measures affect my electricity bill?

The Government has designed a strategy of 'drastic reduction in energy taxation' that can mean savings of up to 60% on taxes associated with electricity consumption:

• Reduction in VAT from 21% to 10% for those households with a contracted power of less than 10 kW.

• Reduction in the general rate of the Special Electricity Tax (IEE) from 5.11269632% to 0.5% for all citizens. However, there is still a minimum charge of €0.5/MWh or €1/MWh depending on the type of customer.

• Suspension of the Tax on the Value of Electrical Energy Production (IVPEE), which stood at 7%.

• Flexibility in contracts: businesses and self-employed workers will be able to modify their contracted power at no cost until the end of 2026, adapting their expenditure to their actual activity during this period.

What measures have been approved for gas?

Natural gas is one of the supplies most sensitive to the crisis in the Middle East, having experienced peaks of 40% in a single day following the start of the conflict. Among the measures for gas, we find:

• Reduction in VAT from 21% to 10%: as previously mentioned, applicable to natural gas and biomass bills. At Endesa, we estimate this as an average saving of €7.50 a month.

• Reduction in the Hydrocarbon Tax (IH) from 0.00234 €/kWh to 0.00108 €/kWh for all gas consumers, regardless of their access tariff.

• Cap on the price of liquefied petroleum gas (LPG): a ceiling is established for the maximum sale price (before taxes) of products such as butane gas cylinders, to prevent price hikes.

• Flexibility in contracts: self-employed workers and customers with an annual consumption exceeding 50,000 kWh/year will be able to modify their flow rate, change their access tariffs, and temporarily suspend their contract at no cost until the end of 2026, adapting their expenditure to their actual activity during this period.

How much does the price of petrol and diesel drop?

For the average citizen, the main benefit is the reduction of VAT on petrol and diesel to 10%, as well as the adjustment of the Hydrocarbon Tax to the minimum EU levels. According to official estimates, this can mean savings of up to 30 cents per litre of fuel, which equates to around €20 less to fill the tank of an average car.

Furthermore, for the most exposed professional sectors (hauliers, farmers, livestock breeders, and fishers), direct aid has been approved to prevent a domino effect that would make the weekly shop even more expensive.

Who can benefit from these measures?

• Households: Everyone benefits from the VAT cut on fuel and gas. For electricity, the majority of households (those with less than 10 kW) have access to the reduced VAT.

• Self-employed workers and SMEs: In addition to tax benefits, they have the possibility of making their electricity and gas contracts more flexible to adapt them to their production level without penalties.

• Electro-intensive industry: An 80% reduction in access tariffs to the transmission and distribution networks to preserve the competitiveness of factories that consume large amounts of energy.

• Primary sector and transport: Direct aid for the use of professional fuels to guarantee supply.

What happens to the electricity social bonus?

Protection for the most vulnerable is reinforced in this new social safety net with the extension of the extraordinary discounts of the Electricity Social Bonus (Bono Social Eléctrico) throughout 2026. The new discount percentages are:

• 42.5% for vulnerable consumers.

• 57.5% for severely vulnerable consumers.

Furthermore, it is guaranteed that there will be no cuts to basic supplies (water, electricity, and gas) for households benefiting from the social bonus until 31 December 2026.

Regarding the Thermal Social Bonus (Bono Social Térmico), the minimum aid per beneficiary has been increased to €50.

How long will these measures remain in force?

• Tax measures (VAT, IEE, IH): In principle, they will be in force until 30 June 2026. However, their duration will be subject to the evolution of the CPI; if prices moderate sufficiently, they could lapse and not apply in June.

• Social Bonus and ban on supply cuts: These social protection measures are extended until 31 December 2026.

• Contract flexibility for businesses: Also in force until 31 December 2026.

During the announcement of the measures, it was assured that this is not a 'closed plan', so if market volatility increases, they could be extended.

Why have these measures been approved?

The direct cause is the extreme volatility in energy markets due to the war in Iran.

Furthermore, the Government seeks to accelerate the energy transition to make Spain more resilient. Electrification is encouraged, investment in renewables is streamlined, and energy storage is promoted so that, in future crises, the country is less dependent on conflicts in third countries.

How do you know if these measures affect you?

If you hold a domestic electricity contract with a contracted power of less than 10 kW, you will see the VAT applied at 10%. You will also see the reduction in the Special Electricity Tax. Both will appear directly on your next bill without the need for any paperwork. 

If you hold a gas supply contract, you will see the VAT applied at 10% on your next bill.

Likewise, you will have noticed the drop in the price of diesel and petrol at service stations.

If you are self-employed, we recommend reviewing your contracted power. The ability to change it without penalty is a golden opportunity to adjust your fixed costs during 2026.

What can you do to save beyond these measures?

Although the tax cuts offer some breathing room, prices in the energy market remain unstable. To maximise your savings, the practical recommendations of the IDAE can make a difference in your home:

• Adjust your thermostat: Keeping the heating at 21ºC in winter and the air conditioning at 26ºC in summer is sufficient for comfort and avoids excessive consumption.

• Optimise your appliances: Fill your washing machines and dishwashers and use 'eco' programmes. Avoid phantom consumption by completely turning off devices on stand-by.

• Improve insulation: Small actions like putting draught excluders on doors and windows or lowering the blinds at night can drastically reduce heat loss.

• Opt for efficiency: When it is time to replace equipment, look for items with an A energy label.

Sources

• Royal Decree-Law 7/2026 of 20 March, approving the Comprehensive Plan for Responding to the Crisis in the Middle East
• Tips for saving energy at homRecomendaciones para el ahorro energético en hogares