A windfall tax will motivate fuel retailers to reduce prices as quickly as possible, Economy Minister Viktors Valainis (ZZS) said on Tuesday in an interview with the Latvian Television programme Rīta panorāma.
He pointed out that current fuel prices indicate that a windfall tax is necessary.
Valainis noted that a fuel price exceeding 1.8–1.9 euros per litre creates very significant pressure on the economy — a number of sectors will suffer from this situation, causing further price pressure on virtually all activities, whether it be food prices or emergency medical services. “In other words, the state budget will have to open its wallet if prices remain at this level,” said the minister.
Valainis also highlighted a lack of consistency in fuel pricing — at filling stations, fuel prices increase immediately when market prices rise, but when prices on the exchange fall, prices at fuel stations do not change. “As soon as the exchange moves upward, prices immediately go up, and this happens within an hour,” said Valainis.
He also stressed that
nearly a week has passed since the excise duty on diesel fuel was reduced, yet diesel prices at filling stations have not changed.
“Almost a week has already passed, but prices remain where they were. I do not really see this excise reduction being reflected in fuel prices. There are various arguments, but in my view, these arguments are not justified. Therefore, this windfall tax would be precisely what would motivate a faster reduction of prices,” said Valainis.
Commenting on fuel traders’ statements that the reduction in diesel excise duty, which came into force on April 1, will be reflected at filling stations with some delay — because the new rate applies to fuel released from excise warehouses to stations — Valainis noted that these arguments should work both ways. When traders purchase fuel at a lower price, it is increased within hours if the exchange price rises. “So what happens then? At that moment, their cheaper fuel suddenly becomes more expensive,” said Valainis.
The LETA news agency has already reported that the government on Tuesday plans to continue evaluating a proposal by the Ministry of Economics to apply a solidarity levy to fuel retailers if their actual retail price exceeds the objectively calculated indicative retail price by more than 3%.
It has also been reported that on the 1st of April, the Law on Limiting Fuel Price Increases came into force, providing temporary measures to mitigate the impact of rising fuel prices on the economy and the population. However,
fuel traders told LETA that the reduction in diesel excise duty will be reflected with a delay,
as the new rate applies only to fuel released from excise warehouses to filling stations starting from the 1st of April.
The law provides for a temporary reduction in excise duty on diesel fuel — from 467 euros to 396 euros per 1,000 litres. For marked diesel used in agriculture, the excise duty rate is set at 21 euros per 1,000 litres. The reduced rates will apply from the 1st of April to the 30th of June.
Fuel traders have also stated that they see no room for compromise regarding the proposed solidarity levy if their actual retail price exceeds the objectively calculated indicative retail price by more than 3%.
“I do not think a compromise can be reached here. We fundamentally do not support such regulation, as it is politically motivated — aimed at ‘fishing’ for voters ahead of the upcoming elections,” Ieva Ligere, Executive Director of the Latvian Fuel Traders Association, told LETA.
She also stated that
fuel traders fundamentally oppose the draft law on the solidarity levy
developed by the Ministry of Economics, as in their view it contradicts free market principles and raises certain risks regarding compliance with the Constitution. “This is not about a windfall tax, it is pure price regulation. It is a political initiative in a pre-election environment. Fuel traders see no economic justification for it, nor has there been an economic assessment,” said Ligere.
She explained that the draft law effectively attempts to regulate prices, even though the largest components of fuel prices cannot be influenced by retailers — 93% of the price consists of purchase costs and taxes, while only 7% is the portion that retailers can control.
Read also: Fuel prices in Latvia: some decrease, others increase
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