Fuel prices to be driven up by increased VAT and excise duties in new year

Circle K gas station.
Circle K gas station. Source: Ken Mürk/ERR

Starting from January 1 next year, VAT in Estonia is set to rise to 22 percent. The increase will affect the prices of all goods, including motor fuel. In May the impact of the excise duties increase will also have an impact on the price of diesel.

Alexela's head of energy sales Tarmo Kärsna told ERR that if gas stations were to apply the VAT increases now, a liter of 95-octane gasoline would cost €1.849 instead of €1.819, as it does currently.

A liter of 98-octane gasoline would be €1.9 rather than the current €1.869, and diesel would cost €1.748 a liter, instead of €1.719.

However, according to Kärsna, this does not mean that, in practice; it will be possible to buy fuel at these prices at gas stations in Estonia come January. In addition to oil prices, motor fuel prices are affected by the cost of finished fuels on the world market price. The fact that winter fuel is more expensive will also have an impact.

Circle K sales director Raimo Vahtrik's calculations were similar to those of his competitor. He stressed that the new VAT rate will only apply to motor fuels from January 1, at which point the state will start collecting the higher tax.

"Until December 31, 2023, VAT will still be at 20 percent," Vahtrik said.

From May next year, excise duties on diesel will also increase. In 2020, the Estonian government reduced diesel excise duties, initially for a two-year period, to mitigate the impact of the coronavirus crisis. That period was subsequently extended.

The excise duties will gradually increase between 2024 and 2027, eventually reaching its pre-crisis level of €493 per 1,000 liters.

Kärsna said that this is a relatively moderate price increase. If the additional excise duties and VAT were to be added to the current price of diesel, it would come to €1.785 per liter after next May's increases.

However, the actual price of fuel after the tax changes will depend on the cost of crude oil.

"Since the end of May, the price of crude oil has risen by 35 percent, while world diesel prices have grown by 55 percent, affected by both crude oil production constraints and a shortage of diesel on the European market," Kärsna said.

"At the moment, OPEC members are reluctant to predict the future price of crude oil, but the trends are pointing towards a price range of US$100 per barrel, as announced by Saudi Arabia in the spring."

Fuel prices remained unchanged from spring until the end of July, but have risen consistently since then. This is due to increases to the price of crude oil on the world market. The rise in diesel prices is also influenced by the onset of the heating season.


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Editor: Michael Cole

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