Finance ministry considering lower duty on diesel

Trucks Source: Siim Lõvi /ERR

The Ministry of Finance is considering lowering the excise duty on diesel fuel, citing the results of a survey carried out among road transport companies according to which a lower duty would help improve carriers' competitive ability.

"The decision to hike the excise duty on diesel fuel was shortsighted; it took advantage of temporarily lower world market oil price, without considering that this would also affect prices elsewhere," Minister of Finance Mart Helme said when commenting on the results of the recent survey carried out by the Estonian Institute of Economic Research (EKI). "The result of the hike was that foreign competitors started taking over international and later also domestic contracts from Estonian carriers. That is why I plan to propose a lower excise duty rate based on the results of the survey for the spring state budget negotiations," Helme said via press release.

The EKI study showed that road transport companies see low transport rates and excessive excise duties on motor fuel as their primary obstacles. If the former are caused by Latvian and Lithuanian companies entering the Estonian market and primarily affect small companies, high excise duties were said to be a problem for major carriers. Fierce competition in the transport sector and unfair competition from foreign carriers are also considered problems.

Other obstacles include expensive labor that tends to be a problem for major companies, while labor shortage mainly seems to plague international carriers.

Road transport companies feel that higher relative importance of foreign vehicles in domestic transport has created an unfair competition situation. Companies feel the state has been inactive in controlling or containing this development. The lower expenses base – cheaper labor, fuel, insurance – of foreign service providers from Latvia, Lithuania and Poland has brought more of them to Estonia, putting pressure on rates and ousting Estonian carriers.

The high excise duty rate on diesel fuel was seen as a factor obstructing business activity by 86 percent of companies. Three-quarters believe lowering the duty on diesel could be a potentially effective business support measure. Transport companies use 89 percent of all diesel fuel sold in Estonia, three-quarters of which is used by road transport companies. Almost a third of all diesel fuel Estonian companies buy abroad comes from Lithuania and nearly a quarter from Latvia.

Were Estonia to lower its duty on diesel to match the price in Latvia, most companies that currently refuel in Latvia would return to Estonia. Smaller companies and those that have more domestic contracts would rather refuel exclusively in Estonia.

Lowering the duty to Latvia's level would still see westbound carriers refuel in Lithuania. That is why the goal of bringing transport companies back to Estonian gas stations would be better served by lowering the duty to Lithuania's level.

While a lower duty would hit tax revenue for Estonia, it would give transport companies the chance to invest in salaries or a more modern fleet to improve their competitive ability.

Estonia's excise duty on diesel fuel is the eighth highest in the European Union. The rate is €493 per 1,000 liters in Estonia, €372 in Latvia and €347 in Lithuania. The duty in Finland is €530 per liter. The Estonian duty was €393 in 2015 and €448 liters in 2016.

Estonian transport companies moved 5.9 million tons internationally in 2014 and 2015 and 6.9 million tons in 2016. The total volume dropped to 6 million tons in 2017 and 5.3 million tons in 2018. At the same time, international carriage of Latvian companies has grown from 14.1 million tons in 2015 to 18.2 million tons last year and from 24 million tons in 2015 to 45.8 million tons in 2018 for Lithuania.

The EKI study questioned 306 companies for whom motor fuel makes up 42 percent of expenses on average between October 3-22.


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Editor: Marcus Turovski

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