Nicosia, Cyprus. The European Commission said cuts to value added tax (VAT) on fuel would not comply with European Union law as European governments respond to rising fuel prices linked to the conflict in the Middle East.
Commission position on fuel VAT
A commission spokesman said the EU VAT directive does not allow member states to apply a reduced rate on supplies of fuel, while acknowledging the need to support citizens. He said member states can reduce excise duties for fuel.
Cyprus measures on fuel taxation
The Cypriot government reduced the fuel consumption tax to 8.33 cents per litre, effective from Wednesday until the end of June. The government also announced that planned “green taxes” on fuel, which had been set to raise the retail price of fuel by nine cents per litre, will not be implemented.
Spain and Poland contacted over planned VAT changes
The spokesman said the Commission sent letters to Madrid and Warsaw after Spain and Poland announced intentions to reduce domestic VAT rates on fuel. He said the letters recalled that the EU VAT directive does not allow a reduced rate on fuel supplies.
Measures in the north
In the north, which is not subject to EU law, VAT on fuel has been set at zero since March 19. The Turkish Cypriot authorities have also zeroed five other fuel-related taxes in recent weeks, including docking fees for fuel tankers, customs duty on imported fuel, fuel retailers’ contributions to the agricultural insurance fund and the tourism incentive fund, and municipal weighing fees for fuel.
How do you think governments should balance support for motorists with compliance with tax rules?