Spain's government is planning to announce significant cuts to fuel and electricity taxes as part of a comprehensive aid package aimed at countering the surge in energy prices, largely attributed to the conflict in the Middle East. Among the key measures, the 7% tax currently paid by power generators is expected to be entirely scrapped. This move is intended to alleviate the burden on electricity producers and, by extension, consumer prices.
In addition to the generation tax, the government also intends to reduce the Value Added Tax (VAT) on gasoline and diesel. The VAT rate for these fuels will be cut to 10% from the current 21%. Furthermore, a special tax on electricity, which currently stands at 5%, will also see a reduction. These changes are designed to provide broader relief to both businesses and consumers grappling with higher energy costs.
The reductions in the taxable base of the Tax on the Value of Electricity Production for 2026 are further detailed in Royal Decree-Law 7/2026. For the first calendar quarter of 2026, there will be a 10% reduction in the remuneration for electricity incorporated into the system, meaning 90% will be included in the taxable base. For the second calendar quarter of 2026, the total remuneration will be excluded from the taxable base, effectively eliminating the tax for that period. These measures specifically target companies that determine electricity prices in the wholesale market, aiming to enable them to offer more competitive prices and benefit consumers.
The tax rate for the Tax on the Value of Electricity Production generally stands at 7%. Taxpayers with production exceeding 500,000 euros are typically required to make four installment payments and an annual self-assessment. The first installment, for the first three months of the year, is due between May 1st and 20th. The taxable base for 2026 will be computed by applying the 7% tax rate to the value of production, after applying the aforementioned reductions for the first and second quarters.
