European Union warns Spain and Poland over tax cuts on fuels

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BRUSSELS: The European Union has issued a formal warning to Spain and Poland, stating that their recent decisions to slash Value Added Tax (VAT) on petrol and diesel may violate bloc-wide legislation. 

This enforcement action is being led by the European Commission, which acts as the executive arm of the Union responsible for ensuring all member states adhere to collective fiscal rules. The European Commission maintains that current directives do not permit reduced VAT rates for fossil fuels, which must remain at a minimum of 15% across all member states.

Spain recently introduced a €5 billion plan to lower fuel VAT to 10%, while Poland's tax reductions have led to an estimated €370 million monthly revenue loss. European Commission spokesperson Louise Bogey clarified that while the need for economic relief is recognised, the executive branch advises member states to focus on reducing excise duties instead.

The warning follows a 60% surge in energy prices driven by the Middle East conflict and the 39-day blockade of the Strait of Hormuz. Despite a new two-week ceasefire, the European Commission remains concerned that broad tax cuts will widen budget deficits and potentially fuel inflation.

The European Commission is now urging all member states to adopt ‘targeted and tailored’ support for vulnerable citizens rather than universal tax reductions. The Spanish government has defended the relief as an essential, temporary anti-crisis measure.