Finance minister not in favor of lowering excise duty on diesel

Trucks. Source: Raigo Pajula/Ministry of Foreign Affairs

Minister of Finance Keit Pentus-Rosimannus (Reform) does not support a proposal by transport and fuel sector companies to lower the excise duty on diesel fuel until at least September 30.

The Association of Estonian International Road Carriers (ERAA), the Estonian Logistics and Expedition Association, the Estonian Association of Vehicle Enterprises and the Estonian Oil Association have asked the government to temporarily lower the duty on diesel by 33 cents per liter.

"The temporary dip in price could remain in effect at least until September 30, while a clause should be added that would allow the exception to be extended should external factors warrant it," the organizations find.

Pentus-Rosimannus wrote in her reply that the government passed amendments to the excise duties act last fall that extended the currently lowered excise duty rates until April 30, 2023. A four-year smooth transition period for returning to pre-crisis duties was ordered from May 1, 2023.

She added that Estonia's excise policy has already treated consumers to at least an equal competition position compared to neighboring countries.

"In a situation where the duty on diesel is €372 per 1,000 liters in Estonia and Lithuania, it is €414 in Latvia and €513 in Finland. The governments of said [EU] member states have not currently decided to react to rapid diesel price hikes through excise duty cuts."

The minister said that slashing the duty to the lowest level permitted by the EU would only bring down the end price by around five cents per liter, provided sellers lower retail and wholesale prices only by the excise component.

"Because the government does not regulate fuel sellers' price formation or profits, there is no certainty a lower duty would benefit all consumers equally. Price difference can be greater than five cents per liter in filling stations currently. Carriers usually buy fuel at near wholesale prices, with some sellers' policy giving them 20 cents off the retail price."

She pointed out that lowering the duty would cost the state budget €22 million which increased VAT revenue from higher fuel prices would not compensate for, adding that prices of motor fuel have not soared as much as those of electricity and gas.

"Lowering duties on motor fuels will become an issue should countries in the region take such measures that could hurt Estonia's competitive ability. The Bank of Estonia has urged caution concerning measures that could negatively impact budget revenue and have no direct link to national security or helping refugees," the finance minister said.

The minister is also against the transport sector's proposal for a excise return system.


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Editor: Marcus Turovski

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