On July 1, the current sales tax (impuesto de ventas in Spanish) will be transformed into the new Value Added Tax – VAT (impuesto al valor agregado – IVA, in Spanish) that will begin taxing services including utilities such as water and electricity.

The VAT will only affect consumers of water and electricity starting in July after exceeding certain consumption ranges. Image for illustrative purposes

The VAT will affect some 500,000 users with high monthly consumption.

The 13% VAT is applicable only to users with more than 280 kilowatt-hours (kWh) of electricity and with respect to water, in excess of 30 cubic meters (m³).

According to statistics from the Public Services Regulatory Authority (Aresep) – Autoridad Reguladora de Servicios Públicos, 80% of electricity services and 84% of water will avoid the new tax approved last December and that goes into effect in a few weeks.

That is, because the average demand for electricity in homes ranges between 200 and 200 kWh per month, while for water it is 15 m³.

Interestingly, the Aresep press office informed that is still analyzing how it will introduce the VAT collection in water and electricity tariff calculation methodologies.

For the most part, the majority of home consumers do not have to worry about having to pay the VAT.