Electricity prices can be lowered by reducing excess VAT

On Wednesday, the European Commission introduced new measures to reduce the all-time record electricity prices. European Commissioner for Energy Kadri Simson told ERR that one of the options would be to lower the unexpected income of excess VAT.

The so-called toolbox to tackle rising energy prices, published by the Commission on Wednesday, does not see any changes to policy to lower energy prices. It was meant as an announcement to member states about which methods they can use to balance out the price increase.

Among those methods is social payments to those most at risk, safeguards to avoid disconnections from the grid and temporarily exempting or applying a reduced tax rate for vulnerable households on electricity, natural gas, coal and solid fuels.

“Short-term support for consumers otherwise in trouble with paying their electricity and heating can be distributed. Each member state has their own scheme on how to determine which people are those that need the most support,” Simson said.

“It is also possible to reduce the electricity bill by lowering the cost of everything that is not electricity prices and grid charges. Everything from VAT, excises, to renewable energy costs,” the energy commissioner added.

She said compensating for inflation would not affect state budgets in some cases, as tax revenue has increased. “Higher prices will bring a higher increase in VAT because it is linked to the starting price. Since member states have not taken this additional revenue into consideration, it is also possible to reduce VAT temporarily. Everyone wins,” Simson said.

Read more: ERR.EE

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