Spain to Reduce Vat on Fuel to 10% Over Iran War, Ser Reports

Spain to reduce VAT on fuel to 10% over Iran war, SER reports

Spain's Response to Middle East Conflict and Economic Impact

Government Measures to Lower Fuel Costs

MADRID, March 20 (Reuters) - 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.

Additional Tax Reductions

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 Context and Inflation Concerns

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.

Actions by Other European Countries

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.

Potential Effects and Economic Sectors Impacted

Impact on Consumers and Inflation

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.

Support for Vulnerable Sectors

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 Energy Landscape

Electricity Prices and Renewable Energy

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.

Exchange Rate Information

($1 = 0.8643 euros)

Reporting Credits

(Reporting by Emma Pinedo, Victoria Waldersee, David Latona; Writing by Victoria Waldersee; editing by Charlie Devereux)