The Chamber proposed temporarily reducing diesel fuel excise duty to the EU minimum level

The Estonian Chamber of Commerce and Industry proposed that the government reduce the excise duty rate on diesel fuel to the European Union's minimum level for up to six months, from the current €0.428 to €0.330 per litre. The Chamber believes this would help reduce cost pressures on companies, curb price increases and maintain the competitiveness of Estonian companies.

According to Mait Palts, Director General of the Estonian Chamber of Commerce and Industry, when considering a temporary reduction in excise duty, it is necessary to assess not only its impact on the state budget but also the long-term cost and impact of not reducing the duty. “A temporary reduction in excise duty would help curb inflation, maintain the competitiveness of Estonian companies and reduce the risk of private consumption declining again. If other countries take steps to alleviate the impact of high fuel prices, Estonia cannot remain a bystander and allow its companies and people to be placed in a worse position than those in neighbouring countries,” Palts said.

Estonia's excise duty rate on diesel fuel is €0.428 per litre and, as at 1 October, 18 European Union Member States have a lower rate than Estonia. For example, Latvia and Germany temporarily reduced diesel fuel excise duty to the EU minimum level of €0.330 per litre from 1 October. In addition, as far as the Chamber is aware, Lithuania and Finland are discussing further measures to alleviate the impact of high fuel prices.

The Chamber believes that high diesel fuel prices most directly affect the transport sector, but also construction, agriculture, mining and manufacturing. Higher transport and production costs are passed on to the prices of goods and services, increasing price pressures throughout the economy. There is also a risk that an excise duty rate higher than Latvia's will divert some international transport and cross-border consumption away from Estonia, as a result of which the state could lose VAT revenue as well as excise duty revenue.

“We understand that a temporary reduction in excise duty will reduce tax revenue in the short term and that efforts to reduce the budget deficit must continue at the same time. Reducing excise duty is also not a magic solution that will completely eliminate high fuel prices, but it is one of the simplest and quickest measures the state can implement to alleviate price increases. Winter is approaching, uncertainty persists in energy markets, and more expensive winter-grade diesel fuel will soon arrive at filling stations. We therefore believe that, in the current situation, the positive effects of reducing diesel fuel excise duty outweigh the negative effects,” Palts stressed, adding that the high fuel prices of recent months have not yet been fully passed on to the prices of products and services.

In its appeal, the Chamber also proposed creating a mechanism that would allow fuel excise duty to be reduced promptly in exceptional circumstances and raised again as the situation normalises, in line with changes in the global market. The mechanism could take account of global market prices and excise duty rates in other Member States so that decisions could be made more quickly and transparently and the lower excise duty rate would apply only during periods when it is economically justified.