Fuel retailers say diesel excise cuts too little, too late

Olerex is one of the fuel companies issuing caution on the proposed diesel excise duty cuts (photo is illustrtive).
Olerex is one of the fuel companies issuing caution on the proposed diesel excise duty cuts (photo is illustrtive). Source: ERR

Major fuel sellers in Estonia have welcomed a Ministry of Finance plan to lower excise duty on diesel, though they claim this will have a limited impact, due to alternative arrangements transport companies will already have made for their fueling arrangements, as well as incentives to refueling outside Estonia, related to VAT. The company spokespeople were talking in the context of large scale commercial fuel purchases rather than with private car owners etc.

"Reducing the excise duty on diesel is certainly welcome and will have a positive impact on the competitiveness of transport companies and the price level of the internal market as a whole," said Risto Sülluste,  head of marketing and communication at Finnish-owned Neste, according to BNS.

"At the same time, based on feedback from corporate customers, the reduction in excise duty may not achieve its objectives to the extent expected," he added, saying that the original hikes had meant international carriers have made changes which were not so simple to reverse.

"It is premature to believe that this step will bring the volume of fueling that moved out of Estonia back to Estonia. A number of high volume international carriers have adapted their processes for fueling outside Estonia, and Latvian, Lithuanian and Polish diesel will continue to be more affordable after the excise duty reduction in Estonia. In addition, today one can easily and quickly get their VAT back on cross-border purchases as well," Sülluste continued.

Priit Põlluste, head of logistics at Estonian fuel retailer Olerex, said that the excise duty rate should be equalized with those of neighboring countries.

"For customers, reducing excise duties on diesel fuel is a good thing. But in order for it to have an effect, the excise duty should be reduced to Lithuania's level," he told BNS.

"The hole in the budget resulting from the reduction of excise duty could be resolved by making the taxation of motor fuels CO2-based. This would reduce pressure on petrol and diesel and increase it on gas," he added, proposing a solution.

Alexela board member Alan Vaht said that lowering the excise duty on diesel fuel would definitely affect Estonian transport companies, but would not solve competition problems.

"The main problem is that Estonian carriers are not in competition with Latvian and Lithuanian transport companies, which are able to refuel in Latvia at much cheaper prices. A separate question is whether lowering the excise duty on diesel fuel will have the same success as lowering the excise duty on alcohol, that is bringing fueling back to Estonia. In this respect, it is rather our opinion that this refueling abroad cannot be brought back to Estonia so easily," Vaht he said, noting that Lithuania had the lowest level, and adding that incentives for companies to make use of VAT-free refueling abroad might swing things away from refueling in Estonia even at the same price, even though relative to Latvian and Lithuanian competitor companies, the move would help Estonian carriers.

VAT-free refueling brings more liquidity options to transport companies, it is claimed.

Minister of Finance Martin Helme (EKRE) announced in late December plans to initiate excise duty rate reductions on diesel fuel in 2020 to increase domestic consumption. According to Helme, lowering the excise duty will have a positive impact on prices, employment and labor taxes. Helme's argument was one of improving competitiveness along the lines of the claimed similar gains made by the alcohol excise duty cuts in the summer.

The excise duty rate on diesel fuel is currently €0.493 center per liter in Estonia, compared with €0.347 cents per liter in Lithuania, and €0.372 cents per liter in Latvia. In Finland the rate is €0.53 cents per liter, meaning Estonia's rate is nearer to Finland's than it is to that of the other two Baltic States.

Diesel prices in Estonia at pump reached a record high earlier in the week, to  €1.499 per liter, in the aftermath of the stand-off between the U.S. and Iran which pushed up world crude oil prices.

Editor: Andrew Whyte

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