Energy crisis | The government outlined its support for paying electricity bills: Tax deduction of a maximum of 2,400 euros, electricity subsidy for low-income earners

In addition to the tax reduction, there is an electricity subsidy for low-income earners and a VAT reduction for everyone.

Government published on Monday detail next winter’s temporary program to support citizens suffering from high electricity prices.

The government proposes three means of support. The first two of them are supposed to be valid from the beginning of January to the end of April.

The VAT reduction is supposed to come into force already in December and continue until the end of April.

1. Tax deduction

In 2023, households can apply for a household deduction for the January–April electricity bills of their permanent residence.

The reduction applies to the price paid for electricity and the basic fee, but not to transmission fees. It can be obtained from the price of electricity for January–April, as long as it exceeds 2,000 euros when added together. The ceiling is 6,000 euros.

You can deduct 60 percent of the amount you are entitled to deduct.

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If the amount the family paid for electricity in the first four months of the year was, for example, 5,000 euros, a 60 percent deduction could be made for the part exceeding 2,000 euros, i.e. 3,000 euros. At that time, the deduction would be 1,800 euros.

The household deduction is a tax deduction. You have to apply for the deduction yourself, and you can benefit from it already during 2023.

At most, the deduction can be 2,400 euros. This is realized if the price of electricity and basic payments in the home for January–April totals 6,000 euros or more.

The reduction is estimated to affect approximately 252,000 households, and it is estimated to reduce tax revenues by 265 million euros.

The household deduction for electricity is not included in the ceiling of other household deductions, so it would not limit the deduction for, for example, home renovations.

2. Electrical support

Some households have so little income that they are unable to fully utilize the tax deduction. The government is proposing an electricity subsidy for these households.

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The electricity subsidy would be 60 percent of the part of the monthly electricity bill that exceeds 400 euros. The largest electricity bill to consider would be 1,500 euros.

Thus, for example, a low-income economy whose electricity bill would be 1,000 euros in January would receive support of 60 percent of 600 euros, or 360 euros.

Support would be sought from Kela and it would be tax-free. It would not be considered income when applying other social security legislation.

3. VAT reduction

The third means of the package is a reduction in the value added tax on electricity. It continues from the beginning of December until the end of April. The value added tax will be reduced from 24 percent to 10 percent, and the discount applies only to the sale of electricity.

Economists have criticized this method especially because it targets everyone and not exactly those who need support the most. Thus, it is feared that the VAT reduction will reduce the incentives to reduce electricity consumption at times of peak use.

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The electricity market works in such a way that even a small reduction in consumption can significantly reduce the price of electricity during the most expensive hours.

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