Simson: Electricity prices can be lowered by reducing excess VAT

Estonia's European Commissioner Kadri Simson (Center).
Estonia's European Commissioner Kadri Simson (Center). Source: Priit Mürk/ERR

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.

On Wednesday evening, the Estonian government coalition reached an agreement in principle on measures to alleviate inflation. The government plans to half the electricity network fee by March and provide support to low-income households, though still needs confirmation from the competition authority watchdog that it can go ahead.

Estonia plans to have a two-part relief system: The first is reimbursing half of the energy networks' fees from October to March, the coldest months and the second is paying additional support to low-income households via local governments. The move should affect around 72,000 households.

Many European countries have also reacted to the prices. Belgium will implement discounts for low-income groups and has taken energy tariffs, which are lower than the average, to use.

"In Belgium, for example, there has been a prolongation of the social tariff, in France, there have been lump-sum payments. We want all member states to take such measures and to take a wide range of measures to help consumers, especially low-income and middle-income consumers," European Consumer Organization energy policy officer Anna Martin told ERR's Brussels correspondent Joosep Värk.


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Editor: Kristjan Kallaste

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