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The intergovernmental fiscal outlook and the implications of Russia’s war against Ukraine, high energy prices and inflation

Box 2. VAT measures introduced in response to rising energy prices

Measures have included: in June 2021, Spain reduced the VAT rate on energy bills from 21% to 10%;
the measure has been extended several times since. Then in October 2021, Italy cut its VAT rate on the
use of natural gas supplies for “civil and industrial uses” to 5% and the Czech Republic announced a
VAT exemption in November 2021. Several other European countries followed suit in early 2022,
including Belgium, Estonia, Lithuania, North Macedonia, and Poland. Türkiye also reduced the VAT rate
on electricity used in residences and agricultural irrigation from 18% to 8% from March 2022. Outside of
Europe, in June, Brazil’s states reduced indirect tax rates applied to fuels, natural gas, electricity/utilities,
collective transport and communication services (considered as “essential goods”) as a result of national
legislation, which led to three months of deflation, despite global inflationary pressures. In March 2022
the Costa Rican government introduced a VAT exemption for purchases of electrical energy intended
for distribution. From April 2022, El Salvador temporarily reduced the VAT rate on fuels and Kenya
halved the VAT rate on automotive fuels to 8% as part of its 2022 budget. Other VAT measures have
included temporary VAT holidays for the purchase of electric bicycles and cars (British Columbia,
Canada) and greater flexibility with respect to VAT repayments for businesses. Some countries have
targeted VAT measures towards businesses and the agricultural sector.

Source: OECD

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