On the topic of reducing fuel taxes to mitigate the impact of rising crude oil prices, Spain dared to explore uncharted territory and received a reprimand from Brussels.
We don’t know how it will end; we only know that last week, the industrial price of diesel in Spain and Italy was €1.318 and €1.242 per liter respectively, a slight advantage for Italy completely reversed when looking at the pump price, which was €1.813 and €2.092 per liter. A price that places Spain among the European countries with the lowest diesel cost. In between are €0.495/l of VAT and excise duties for Spain and €0.850/l for Italy. An abyss, despite our country being the only one to reduce excise duties, alongside Spain and Poland.
The difference between us and Spain, regardless of the starting level of taxation that already saw us at a disadvantage, lies in the tax on which action was taken, whose different application mechanism we have already explained.
The latest development is that the Commission has pulled Madrid’s ear, as widely reported by El Pais as early as Wednesday.
In fact, Brussels sent a formal letter to the Spanish government warning that the reduction of VAT on fossil fuels from 21% to 10%, introduced with the anti-crisis decree of March 20 to address the price increases caused by the war in the Middle East, violates the EU VAT directive which does not allow reduced rates for fuels.
The Treasury, led by Arcadi España, confirmed receiving the letter but defended the measure as temporary and non-structural, reiterating that it does not intend to revoke it at least until June 30 and will consider a possible extension only based on the evolution of the energy crisis, while the Commission suggested instead acting on excise duties which can be reduced to the minimum allowed by European regulations.
The VAT reduction, which will have an impact on public accounts of about 507 million euros until June, adds to the excise duty reduction of 656.5 million and contributes to a total cost of the anti-crisis plan exceeding 5 billion, in a context where Brussels urges member states to avoid measures that encourage fossil fuel consumption and to favor interventions aimed at energy saving and electrification.
Instead, Spain has blatantly ignored Brussels’ indications and the Ministry of Finance reiterated that «we fully understand and share the need to support citizens in these difficult times. However, the reduction will have an impact on revenues of about 507 million until June 30. The Ministry of Finance has not planned to revoke the measure for now, which will be in force at least until June 30.»
Brussels’ reply was that «member states can indeed reduce special taxes on fuels. The problem is that this option, acting on excise duties on fuels, has already been approved in Spain with the reduction to the minimum allowed by the EU for this latter tax on hydrocarbons.»
In other words, Spain reduced excise duties – which is allowed by the EU – and also VAT, which is not allowed.
With many regards to the bureaucrats in Brussels who continue to argue that the patient must be at death’s door before administering medicines: «our room for maneuver is more limited than before due to previous crises and the need to increase defense spending. Current rules contemplate suspension only in case of a severe economic recession in the euro area or the entire EU. We are not in that situation now.»
A tug of war to closely follow.
