Tax Code to be amended as of September 1: What happens to the money collected from the excise duty on fuel?

In order to raise more money to the budget, the Finance Ministry has amended the Tax Code, thus allowing the increase in excise duties for gasoline and diesel fuel. The amendment, which was to be enforced as of September 1, marks a return to the excise duty level on January 1, 2016, which included the over-excise duty of 7 eurocents. In this respect, an ordinance was passed for amending and completing Law no. 227/2015 regarding the Tax Code. Following the increase in excise duties, the financial impact on the general consolidated budget in 2017 is estimated at RON 1,141.65 million, expected to increase to RON 3,407 million in 2018, reaching RON 3,643.9 million in 2019 and RON 3,844 million in 2020.

According to the substantiation note, the Finance Ministry proposes the return, for gasoline and diesel, to the levels of the excise duties in 2016, namely: lead gasoline – RON 3,022.43/ton, respectively RON 2,327.27/1,000 litres; unleaded gasoline – RON 2,643.39/ton, respectively RON 2,035.40/1,000 litres; diesel fuel – RON 2,245.11/ton, respectively RON 1,897.08/1,000 litres.

LOW PURCHASES IN H1

In the first half of this year, the overall sums collected by the budget from the energy excise were of RON 6,265.3 million. A comparative analysis of the excise receipts in H1 2017, as compared to H1 2016, completed by the Finance Ministry, reveals the fact that in H1 2017 the excise receipts related to the energy products have decreased by RON 767,633,796.55. Although in H1 2017 the diesel fuel consumption grew by 253,078.18 thousand litres as compared to H1 2016 and the unleaded petrol sales grew by 58,854.08 thousand litres, the receipts decreased by RON 634,348,226.27 and respectively RON 223,661,683.68, the main reasons being the cut, since January 1, 2017, of the level of the excise duties for diesel, from RON 1,897.08/1,000 litres to RON 1,518.04/1,000 litres, respectively the level of excise duties for unleaded gasoline from RON 2,035.4/1,000 litres to RON 1,656.36 lei/1,000 litres, as well the cut of the VAT by 1 percentage point.

HOW DOES THE PRICE STRUCTURE LOOK LIKE?

Currently, as a result of the analysis on the Member States’ excise levels, it is noted that Romania has the lowest levels of excise duties, close to the minimum levels provided by European Union (EU) legislation. Thus, in July 2017 Romania reached the lowest price of Euro-95 gasoline in the European Union (EUR 0.997 per litre, taxes included) and the third lowest price for diesel fuel (EUR 0.977 per litre, taxes included), after Luxembourg (EUR 0.955 per litre) and Bulgaria (EUR 0.961/litre).
According to the substantiation of the draft law, Romania has the lowest price of gasoline with taxes in the European Union, whereas, in terms of price of gasoline without taxes, our country ranks 15th in the European Union, with a level above oil producing countries such as the UK and the Netherlands, but also above countries such as Austria, Poland, Bulgaria. The situation is similar in the case of the price of diesel fuel without taxes, Romania is on the 17th place in the European Union in terms of price, much above the oil producing countries, but also above countries such as Austria, Italy, Poland, Bulgaria.

THE RESULTS OF TAX CUTS

Following the tax cuts in early 2017, the share of taxes in fuel prices has decreased, which was anyway lower than the average EU level. Thus, in July 2017, taxes represented 52% of the price of gasoline, i.e. 50% of the diesel fuel price (in Romania), whereas, the European Union average reveal that taxes reach 62% of the gasoline price and 57% of diesel fuel price.
Also, the share of taxes in the fuels’ market prices is currently lower in Romania than in other countries in the region, such as Austria (60% for gasoline and 55% for diesel), Poland (57% for gasoline and 54% for diesel) or Bulgaria (53% for gasoline and 51% for diesel). Thus, although the decrease in taxation was aimed at reducing fuel prices, it was noticed that the expected cuts was mitigated by the fact that prices without taxes have increased, therefore the share of taxes in fuel prices is the lowest in the European Union, well below the EU average.
Regarding the fuel prices after the increase of the excise tax, Mariana Gheorghe, CEO OMV Petrom, said that she would not comment on the commercial decisions to be made by the company, noting that the associations the company is member of have had discussions with the authorities on this topic. She added that in the final price the taxes have a share of 50%, the international price of crude oil 35-40%, the expenses and the profit of the company being of about 10-15%. At the same time, the OMV Petrom General Executive Director stated that on January 1, 2017, when the government decided to eliminate the over-excise duties and to reduce VAT, the fuel prices fell by RON 0.50 in a single day.

WHERE DOES THE EXCISE MONEY GO?

Unhappy with the decision made by the government, the representatives of the Romanian Federation of Transport Operators (FORT) have sent an address to the Finance Ministry, asking the following questions: “1. What percentages have been charged to the state budget for each litre of fuel sold in the wholesale or en-detail system by the fuel suppliers in Romania? 2. What is the destination of the amounts collected by the state budget from the sale of fuels?”.
The Finance Ministry’s answer shows that, according to the “state budget execution for the excise duties receipts group from the sale of energy products, RON 6,265.3 million were collected in the first six months of 2017.” Concise and right to the point...

POSSIBLE NEGATIVE CONSEQUENCES OF INCREASING THE EXCISE DUTIES

  • Losses to the state budget (Romanian Union of Road Carriers in Romania - UNTRR): “If the state will increase the excise duty by RON 0.38/litre of diesel fuel and gasoline, the Romanian transporters that perform international transport operations will be forced to fill the tanks abroad, by re-directing only 15% of the current volume of diesel fuel sold in Romania and by the decrease in the same share of gasoline sales, any hypothetical gain for the Romanian state is cancelled!”
  • Chain price increases for all products and services on the market (Andreea Paul, Chairman of INACO – Initiative for Competitiveness): “These tax changes have nothing to do with higher economic competitiveness, neither with the growth of purchasing power or the quality of life.”
  • A suffocated business environment, slower economic growth, fewer jobs (MEP Siegfried Mureşan): “The fuel excise duty increase will make us less competitive against other countries in the region, which means fewer investments and a weaker economy.”
  • Higher inflation (Mugur Isarescu, Governor of the National Bank of Romania): “The increase in excise duty for fuels will push inflation upwards.”

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