Oil association: Danger of €18 million in tax revenue moving to Latvia

Price of gasoline 95 at an Alexela filling station on June 16, 2022.
Price of gasoline 95 at an Alexela filling station on June 16, 2022. Source: ERR

Estonian fuel sellers believe that Latvia's recent decision to suspend the country's mandatory bioadditive component requirement will see €18 million in tax revenue move out of Estonia if steps not taken.

Mart Raamat, executive manager of the Estonian Oil Association, said that while the question of whether to soften the blow of soaring fuel prices for consumers used to be theoretical, Latvia's recent decision should affect the level of debate in Estonia.

"Should the Latvian economy ministry's forecast of a 10-cent reduction in the price of motor fuel materialize, gasoline would cost 20 cents less in Latvia than in Estonia. The situation is even more complicated concerning diesel fuel the price difference of which will be restored at 6-8 cents in Latvia's favor," Raamat explained.

He said that Estonian carriers have suggested that a difference in price of just 5 cents can affect refueling policy and motivate a considerable part of the Estonian transport sector to refuel in Latvia.

"We have been down this road and know exactly what will happen – during the previous period when Estonia had higher diesel prices than Latvia, our companies bought, on average, 32 million liters of fuel a year in Latvia. It is very likely that this would happen again, treating Latvia to €18 million of what should be Estonia's tax revenue," Raamat said.

He added that the government is similarly unable to accurately analyze the sector in the context of the state budget.

"Looking at the 2022 budget revenue forecast from last fall, more expensive fuel prices are already yielding an extra €30 million. Considering the risk of cross-border trade seriously impacting revenue, the ruling party's claims according to which lowering the excise duty would cost Estonia an arm and a leg simply isn't true."

Raamat suggested that the government has repeatedly promised to take steps should Latvia alter its fuel policy. "Unfortunately, it seems that our current government is the best in Europe at stalling and pulling the wool over people's eyes. All other countries have taken rapid steps to alleviate the price advance, while we're still analyzing."

Because summer is the peak season for fuel consumption, rapid decisions could alleviate people's summer travel costs," Raamat suggested.

Carriers: Excise debate must be about more than price at the pumps

Herkki Kitsing, member of the board of Estonian Logistics & Freight Forwarding Association (ELEA), said that the problem goes beyond missed excise duty revenue and to the business Estonian carriers stand to lose. "Years of high excise duties showed that Estonia lost even more money through local carriers' lower competitive ability, with foreign companies taking over much of the Estonian market."

Kitsing added that after the November decision to cancel a planned diesel excise duty hike, the road transport sector has generated seven times the revenue than the last four years' annual average in the conditions of higher duties. Foreign trade revenue of the sector was greater by €250 million in 2021 compared to previous years.

"The government has hard data from the last time the excise duty was cut on how improved competitiveness of the logistics sector yielded more tax revenue. Not to mention that less fortunate people can no longer afford to drive to work," Kitsing added.

ELEA members find that the price of diesel should be taken to its lowest level to even prices between states and for Estonia to have done everything it can to safeguard its companies' competitive ability and citizens' budgets.


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Editor: Marcus Turovski

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