As oil prices have risen due to the war in Ukraine, a number of European countries are looking for ways to curb the rise in fuel prices by reducing excise duty and value-added tax (VAT) rates, introducing price ceilings, and offering refunds. Lithuania has also started to talk about it.
International carriers have been closely observing tax changes and fuel prices in Europe. If the measures to curb price increases are maintained for a longer period of time, transit traffic flows in Europe may change. What can haulage companies and consumers expect?
Excise duty reductions will not have the desired effect in Lithuania
There have been increasing talks about reducing excise duties on fuel in Lithuania. Other European Union Member States that have temporarily reduced excise duties on fuel are being cited as examples. However, it is important to note that the EU requires the Member States to apply minimum excise duty rates for different types of fuel, and in Lithuania, these rates are among the lowest across Europe.
Germany, which has cut its excise duty rates sharply for three months from 1 June, is referred to by the parliamentary opposition as a role model, but, for example, diesel fuel in this country is taxed at a rate of EUR 0.47, while in Lithuania the excise duty is only EUR 0.37, whereas the minimum threshold required by the EU is EUR 0.33. The proposal is therefore unlikely to have even a minimal impact on curbing price surge. The situation is similar for petrol, with an excise duty of EUR 0.66 in Germany and EUR 0.46 in Lithuania.
Excise duty cuts direct carriers to neighbouring countries
While some EU Member States allow carriers to reclaim part of the excise duty paid, Belgium, Croatia, Italy and Slovenia, for example, are reducing the excise duty rate temporarily (which lowers the price of petrol as seen on the petrol station price boards), but they are also reducing the part of the excise duty to be refunded to carriers.
For example, Belgium, which has been a particularly popular country for transit routes due to its high refundable excise duty coefficient, has reduced its excise duty rate by EUR 0.17 per litre, but at the same time, the refundable excise duty has been reduced from EUR 0.24 to EUR 0.08 per litre. Thus, the reduced excise duty makes the price of fuel cheaper for household consumers, but carriers do not benefit from the positive effect. Data from EBV Finance, a provider of tax refund services in Europe, shows that customers are now more likely to fill up in Luxembourg or France instead of Belgium. France has reduced diesel prices since 1 April, by refunding EUR 0.15 per litre. This has made the country even more attractive to transport service operators.
A question may naturally arise about the motive for subsidising foreign companies. When demand increases, the French government collects more taxes in the budget; however, the line between the benefits and the cost of compensation is very delicate, so it is very likely that, if prices fall even slightly, this compensation could be abolished, and international carriers would have to look for alternatives urgently.
Fuel prices jump up as restrictions are lifted
Other countries are also taking steps to curb rising fuel prices. These include temporary reductions in the VAT rate on fuel (Poland, which has reduced its VAT rate from 23% to 8%, is granting a VAT rebate on fuel until the end of July) and price ceilings on fuel imposed by Slovenia, Croatia and Hungary.
A VAT cut or a price ceiling makes the fuel price more competitive than in neighbouring countries. If demand were to rise sharply, countries could replenish their state budgets, as the sale of fuel subject to excise duties or VAT makes a significant contribution to tax revenue. However, the measures are sometimes ill-advised, as was the case in Hungary. As fuel prices in Europe have risen increasingly, the attractiveness of the country due to the imposed price ceiling has become so great that it has led to rampant “fuel tourism” where consumers or carriers from neighbouring countries have started to fill up in Hungary, thus increasing public spending on refunds. The regulation was soon changed and fuel is now sold at the reduced price only to cars with Hungarian registration plates.
Meanwhile, in Slovenia, where the price ceiling was lifted on 1 May after a month and a half, there was a sharp price hike: regular petrol prices in Slovenia rose by around 8% and diesel by more than 20%.
The examples of Hungary, Croatia and Slovenia show that price ceilings are a temporary and relatively short-term measure to fight fuel prices.
There is still a lot of uncertainty as to how long countries will be able to provide support measures and whether they will be able to sustain them until an agreement is reached and oil production from the Member States of the Organisation of the Petroleum Exporting Countries (OPEC) is increased in order to reduce the price surge and stabilise global markets.
The situation of large carriers is better
Faced with rising fuel prices and a situation where countries do not create a more favourable tax environment for carriers, haulage companies have to find their own solutions to cope with increased costs.
The first step is for companies to increase prices for their services in order to pass on the burden to their customers, apply a fuel surcharge to freight, and look for opportunities to adjust routes to bypass toll roads. Some companies, however, have to bear certain losses.
All logistics companies have felt the impact of rising fuel prices, but large and medium-sized carriers are coping more easily with increased operating costs than small carriers.