Spain Ends Fuel VAT Relief, Phasing Out Discounts Impacting Andorra Importers

Spain's government has approved a decree restoring the 21% VAT on fuel effective July, while phasing out special hydrocarbon tax discounts: 15 cents per litre in July, 10 cents in August, and 5 cents in September, before full taxation resumes in October.

Economy Minister Carlos Cuerpo announced the measures following Monday's Council of Ministers meeting. The decree, published in the Boletín Oficial del Estado on Wednesday, includes a safeguard clause to reinstate full relief if international oil or gas prices rise sharply. It requires congressional approval within 30 days but will take effect regardless if support is lacking.

The gradual phase-out aims to transition households from subsidies amid stabilising markets. Brent crude has fallen from over $110 per barrel—linked to US-Iran negotiations and a pre-agreement to reopen the Strait of Hormuz—to around $70, prompting three weeks of price drops in Andorra. Local diesel stands at about €1.52 per litre, petrol at €1.51.

Andorran fuel importers, hit by three months of sales declines due to Spanish low-cost stations under March's relief package, now see limited recovery prospects. David Porqueres, president of the Fuel Importers Association (Assidca), described an "effect zero" for diesel from Wednesday, with petrol 95 rising 8 cents and petrol 98 by 12 cents in Spain. He noted Andorran prices remain uncompetitive against Spanish low-cost outlets like Guissona (20-cent gap) and Esclat (8-10 cents), especially during peak tourist months of July and August.

"We'll stay as expensive as diesel and slightly cheaper for petrol in July, improving over time," Porqueres said after reviewing the decree. The sector, which sought Andorran government intervention without success, anticipates continued sales pressure from border drivers.

Relief for agriculture, transport, and fishing persists at 20 cents per litre, alongside €165 million for fertilisers atop €500 million already allocated. Electricity production tax will drop to 5% for late 2026, 2.5% in 2027, and zero in 2028, supported by €1.825 billion in 2026 fiscal aid and €2.7 billion less revenue from 2027-2028. Prime Minister Pedro Sánchez pledged to mobilise all state resources against energy shocks.

Analysts indicate the changes may eventually widen Andorra's price advantage, though short-term outcomes depend on global oil trends, station pricing strategies, and congressional developments. Consumer habits—drivers delaying fill-ups amid expectations of further drops—plus a strengthening dollar, continue to slow stock integration and recovery. Porqueres recalled the sector's resilience, absorbing 2022 swings from €1.80 to €1.30 per litre unlike other industries.