SPAIN is facing pressure from Brussels after introducing a tax cut to fuel amid the ongoing war in Iran.
The European Commission, under Tax Commissioner Wopke Hoekstra, has formally warned the government of Pedro Sanchez that slashing VAT on fossil fuels to 10% breaches EU law.
In a letter sent at the end of March, officials made clear that European rules do not allow reduced VAT rates on fuel supplies.
Poland has also received one after implementing similar measures.
Despite the warning, the Ministry of Finance, now led by Arcadi España, insists the tax cut is a temporary response and is set to remain in place until June 30.
READ MORE: Spain’s Pedro Sanchez welcomes Iran war ceasefire but fires broadside at Donald Trump
Brussels has now suggested an alternative. “We fully understand and share the need to support citizens in these difficult times. However, Member States can reduce excise duties on fuel”, the Commission stated.
The problem for Spain is that it has already gone down that route.
The government has reduced hydrocarbon taxes on diesel, petrol and other fuels to the minimum levels permitted under EU rules, with an estimated impact of €656.5 million.
Meanwhile, the VAT cut will reduce state revenues by an additional €507 million by the end of June, bringing the total cost of the anti-crisis package to more than €5 billion.
Beyond this legal dispute, there is a broader policy clash.
EU officials, including Commission President Ursula von der Leyen and Energy Commissioner Dan Jorgensen, have urged member states to avoid measures that could increase fossil fuel consumption.
READ MORE: Spain calls for windfall tax on energy firms as Iran war sends fuel prices soaring
Spain’s tax cut on fuel seems to run counter to that strategy.
Economy Commissioner Valdis Dombrovskis recently warned that EU countries have less room to manoeuvre after years of crisis-driven spending.
Finance ministers of Spain, Italy, Germany, Portugal and Austria have sent a letter to Brussels, calling for a tax on the windfall profits energy companies are making due to rising prices and fuel costs.
Official spokespeople in the EU capital have confirmed that they received the letter and are still assessing it.
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