Spain to reduce VAT on fuel to 10% over Iran war

Spain on Friday will reduce the value-added tax on fuel products to 10% from 21% as part of measures to cushion the economic blow from the Middle East conflict, SER radio station reported, citing sources familiar with the plans.

Madrid also plans to suspend the excise duty on hydrocarbons, which would lead to an immediate reduction in the price of diesel and petrol of between 0.30 euros and 0.40 euros ($0.35-$0.46) per litre, the SER report added.

The government will eliminate a 5% tax on electricity consumption, according to the report. A government spokesperson declined to comment ahead of the press conference announcing the measures, set for 11 a.m. local time(1000 GMT).

European countries, which are heavily dependent on energy imports, are taking action to curb an expected rise in inflation. Financial markets expect euro zone inflation to climb nearly 4% over the next year, then take years to return ‌to the ⁠European Central Bank’s 2% target.

Italy on Wednesday cut excise duties on fuels by 25 cents per litre and Germany is mulling a support package including a windfall tax on oil companies.

The reported measures could help prevent sharp rises in fuel prices from causing inflationary pressure on other goods but would primarily help private car owners, who tend to be wealthier, economist Antonio Gonzalez said.

Ministers said earlier this week the full package will include aid for economic sectors most exposed to the crisis, but added that the country’s high generation of renewable energy meant its economy was less exposed to the impact of oil price spikes caused by the war.

Spain’s electricity prices have been among the lowest in Europe this year due to abundant rains filling hydropower reserves, high electricity generation from wind and solar and nuclear power enabling it to rely less on gas than other countries.