Finance minister proposes delaying spring's excise duty rate hike by a year

The proposal concerns diesel fuel, heating oil, natural gas and LNG.
The proposal concerns diesel fuel, heating oil, natural gas and LNG. Source: Ken Mürk/ERR

Finance minister Keit Pentus-Rosimannus (Reform) is to present a bill to the government which proposes extending current excise duty rates by one year, and postponing an excise duty hike planned for 2023. The excise duties were cut in an effort to mitigate the effects of the coronavirus pandemic, but re-raising them to pre-pandemic levels needs to be set against the current, record levels of inflation.

The proposal concerns diesel fuel, oil used in heating, natural gas, as both domestic fuel and motor fuel, and Liquefied Natural Gas (LNG).

Furthermore, the proposed bill would extend by a year the taxation of special-purpose diesel fuel for the agricultural sector.

The taxation of this special-purpose diesel, also known as derv, is taxed at the minimum level EU rules permit.  

The draft submitted by the Minister of Finance states that the excise duty rates as previously reduced will be valid for one more year, until April 30, 2024. This will be followed by a gradual restoration of excise duty rates to pre-crisis levels, over a period of four years (2024-2027).

Pentus-Rosimannus said: "The restoration of excise duties to pre-crisis level would bring the wrong impetus and message in the current inflationary situation, and this must be avoided."

The move will also bring more security to the agricultural sector, the minister added.

"It is also important for farmers to get assurance as early as possible that the special purpose diesel they use will be taxed at the minimum level until the spring of 2024." 

The changes concern the  Alcohol, Tobacco, Fuel and Electricity Excise Act and the bill amending it, which is set to enter into force on January 1, 2023.

With the amendment to the Alcohol, Tobacco, Fuel and Electricity Excise Act, excise rates for electricity and certain fuels were initially lowered for a period of two years from May 1, 2020, in response to the arrival of the pandemic and its economic effects. 

At the end of 2021, a law passed which provided for a four-year, gradual restoration of fuel and electricity excise duties, to pre-crisis levels, starting from May 1, 2023.

The changed security situation in Europe has led to a sharp increase in the price of energy carriers. This has brought the biggest price increase to Estonia in recent decades. In the current situation, according to the Ministry of Finance, it is important that the state supports both households and business consumers. This makes it justifiable to postpone the excise duty increases that were supposed to take place on May 1, 2023-2026 by one year and to achieve the pre-crisis level of excise duty rates by 2027.

Additionally, the agricultural sector and oil shale mines can use special purpose diesel fuel at the level of the EU's minimum rate, which is €21 per 1000 liters, until April 30, 2024. 

From May 1, 2024, the excise duty rate for special-purpose diesel fuel will rise to €107 per 1,000 liters, while the oil shale mining sector will have to purchase diesel at the standard-taxed rate.


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Editor: Andrew Whyte

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