Spain and Poland might have run afoul of European Union rules with their tax cuts on fuels aimed at curbing the economic impact of the Middle East war, the European Commission said Wednesday.
Madrid launched a €5-billion ($5.8-billion) plan to reduce the value added tax (VAT) on fuel last month, and Warsaw similarly moved to slash VAT on petrol and diesel, as the Iran conflict sent energy prices soaring.
But the EU’s rules on VAT do not envisage reductions for fossil fuels, commission spokeswoman Louise Bogey told a press conference in Brussels.
Advertisement
“We recommend rather to use reduction of excise duties,” she said, adding that the EU’s executive sent letters pointing that out to Madrid and Warsaw, and was waiting for a response.
Spain’s Ministry of Finance have ensured that there’s a “constructive and fluid dialogue” with Brussels, and have argued that the measure is “temporary and not structural”, with their “priority” being “to support families, the self-employed and businesses in mitigating the effects of a war that should never have started.”
On March 26th, the Spanish Congress approved the package of measures proposed by the ruling Socialists which includes further tax cuts to contain electricity and gas bills, while also reinstating protection for vulnerable consumers, with the energy social bonus and the prohibition of supply cuts.
READ MORE: Rent, fuel and bills – Spain to spend €5 billion to ease Middle East war fallout
Spain and Poland are among a number of European nations that have sought to contain energy costs with tax reductions, caps on fuel prices and other measures over the past month.
Oil and natural gas prices dropped sharply Wednesday after the United States and Iran agreed to a two-week ceasefire that sets terms to reopen the vital Strait of Hormuz.
Under an EU directive to harmonise taxation across the 27-nation bloc, VAT cannot be lower than 15 percent, with exceptions for some categories of goods and services, but not fuels.
With additional reporting by Alex Dunham, The Local Spain’s Editor