Nicosia, Cyprus. Parliament on Thursday approved government plans to temporarily reduce the fuel consumption tax, citing rising prices amid the ongoing war in the Middle East. The reduced rates will apply from Saturday until the end of June.
New tax rates and fiscal impact
The fuel consumption tax rate has been set at 8.33 cents per litre for petrol and six cents per litre for diesel from Saturday until the end of June. The reduction is forecast to cost the government €18.6 million in lost tax revenue.
The possibility of extending the reduced tax rate is expected to be reviewed closer to its planned expiry date.
Concerns over profiteering and calls for oversight
During a brief debate, Diko MP Christiana Erotokritou, chair of the House finance committee, described the measure as a “significant intervention” but warned it may be “exploited by the cunning,” saying petrol station proprietors could engage in profiteering by keeping retail prices high and pocketing the difference.
Edek MP Marinos Sizopoulos said the measure is “in the right direction” but agreed that “substantial supervision and control” is needed. He said “price increases are passed on immediately, while reductions are delayed” by petrol station proprietors, and called on the government to reduce value added tax on fuel.
A European Commission spokesman confirmed to the Cyprus Mail on Wednesday that reducing VAT on fuel would be illegal. Sizopoulos said petrol stations in the Republic of Cyprus face “unfair competition” from the north, where European Union law does not apply and VAT on fuel has been zero since March 19.
Akel MPs Christos Christofides and Andreas Kafkalias and Disy MP Onoufrios Koulla also called on the government to act to prevent profiteering by petrol station proprietors. Kafkalias said the announcement of the tax reduction on March 26, ten days before it comes into force, “created room for exploitation by the market.”
Legislative process
The bill was debated and passed swiftly at Thursday’s parliamentary plenary session after being rapidly taken through the House finance committee earlier in the day.
How should the government ensure that the fuel tax cut is reflected in pump prices?