In the course of the current year 2024,a notorious increase in electricity and gas bills is anticipated, mostly due to changes in the electricity tax and the increase in VAT, directly impacting consumers’ pockets from 1 January 2024.
To date, the electricity tax has been levied at a low 0.5%. However, as of 1 January, it has increased to 2.5% and remained so for the first three months of the year, before rising to 3.8% in the second quarter. While this represents a significant change, it is essential to remember that the pre-reduction level was 5.11%.
On the other hand, VAT (Value Added Tax), currently at 5%, will be raised to 10%. Prior to the energy crisis, this rate was 21%. This tax impacts on all items of the bill, including power, energy, rent, social bonus and electricity tax.
One of the measures against the energy crisis that will remain unchanged this year, at least until 30 June 2024, are the discounts on the social electricity voucher, providing rebates to the most vulnerable consumers.
Tax Increase of VAT on electricity – Evolution 2023-2024
- Value Added Tax (VAT) From 5% to 10%.
- Electricity tax From 0.5 to 2.5% (first quarter of the year) From 2.5%to 3.8% (second quarter of the year)
- Tax on the Value of Electricity Production (IVPEE) From 0.5% to 3.5% until March It will rise to 5.25% until June and finally to 7%.
Related post: https://solarmente.es/en/blog/answers-on-the-reduced-vat-on-the-installation-of-solar-panels-for-self-consumption/
Reasons for the increase in VAT on electricity and gas bills
The increase in VAT on electricity and gas bills in 2024 is due to the need to adjust taxes and economic measures to tackle the energy crisis and guarantee the sustainability of the electricity system, generating an impact on consumers’ budgets from this new year onwards.
In other words, the partial withdrawal of the government’s anti-crisis shield is seen as the key factor that will push up energy prices.
As noted above, electricity bills will increase due to changes in market prices and the 5-10% increase in VAT, implying an increase of approximately two euros per month for the average consumer.
In addition to the VAT increase, other taxes will contribute to the increase in electricity bills. The previously suspended production value tax (IVPEE) will be set at 3.5% until March, then rise to 5.25% until June, and the special electricity tax, which we have already discussed, will increase from 0.5% to 2.5% until June, then rise to 3.8%.
And what is the situation with VAT on gas?
For gas, there will be a similar increase in VAT from 5% to 10% for the first three months of the year, before returning to 21% in April.
Difference in the bill compared to 2023
The increase in VAT to 10% and all other taxes on electricity bills by 2024 will lead to a significant increase in consumer spending, making a significant difference compared to the previous year.
If electricity prices were to remain constant between December 2023 and January 2024, the bill could increase by 6.82%, representing an average monthly increase of €2.20, or about €26 per year. However, variability in electricity consumption and price fluctuations may influence the exact calculation of the increase.
It is important to note that, if the government had opted to restore VAT to 21% (the rate set before the anti-crisis measures), the impact on electricity bills would have been even more significant. In this scenario, the annual cost would raise the bill by approximately 75 euros.
In addition, the gas price cap, known as the “Iberian exception”, expires in 2024. In case of an increase in gas prices, this could lead to an additional increase in the bill.
The increase in VAT on electricity and gas bills in 2024 will have a direct impact on consumers, affecting their monthly expenses. The following details how this increase will translate in practical terms, with specific examples based on the percentage increases:
VAT increase on electricity – Practical examples:
Before the increase, VAT on electricity was subsidised at 5%, but with the change, it now stands at 10%.
Suppose a consumer had a monthly bill of €100 before the increase.
We calculate the increase:
Old VAT (5% of 100 €) = 5 €.
New VAT (10% of 100 €) = 10 €.
Monthly difference: €5
Therefore, the monthly increase due to the VAT increase would be €5 for this particular consumer.
Increase of Other Taxes on Light:
The electricity tax also increased from 0.5% to 2.5% in the first quarter and to 3.8% in the second quarter.
Following the same scenario of a monthly bill of €100:
We calculated the increase in the electricity tax:
- Old tax (0.5% of 100 €) = 0.50 €.
- New tax (2.5% of 100 €) = 2.50 € (first quarter)
- New tax (3.8% of €100) = €3.80 (second quarter)
Monthly difference:
Quarterly increase = (2,50 € + 3,80 €) – 0,50 € = 5,80 €.
Average monthly increase = 5.80 € / 3 months ≈ 1.93 €.
Thus, the total increase due to the electricity tax would be approximately €1.93 per month for this consumer.
Total Impact on Electricity Bill:
Adding the VAT increase and the electricity tax, the total impact would be the combination of both increases.
We calculate the total increase:
Total monthly increase ≈ VAT increase + Electricity tax increase
Total monthly increase ≈ 5 € (VAT) + 1,93 € (electricity tax) ≈ 6,93 €.
Therefore, this consumer would see a total increase of approximately €6.93 on his electricity bill each month.
In conclusion, the increase in VAT on electricity and gas bills in 2024 highlights the importance of exploring sustainable alternatives. Valuing solar energy presents itself as a key option to mitigate economic impacts.
Installing solar panels with experts like Solarmente.es not only helps to reduce dependence on the traditional electricity grid, but also offers long-term benefits.
Self-generation of solar energy is not only environmentally friendly, but can provide consumers with greater autonomy and stability in their energy costs.
