Estonian government rejects three fuel excise tax cut proposals — ERR News
On October 28, the Estonian government decided not to support three opposition bills on reducing fuel excise taxes. The country’s Ministry of Finance believes such measures would significantly reduce budget revenues but have only a limited effect on prices at filling stations, ERR News reports.
Assessment of budget losses
The most extensive proposal was submitted by the EKRE parliamentary group. It envisaged reducing excise taxes on petrol, diesel fuel, gas and heating fuel to the minimum rates permitted in the EU, as well as setting a 9% VAT rate for excisable fuels.
According to the Finance Ministry’s estimate, implementing this initiative would reduce state budget revenue by €292.1 million in 2027. If the reduced rates remained in force until the end of 2030, total losses could reach €1.436 billion.
Two other bills, submitted by the Isamaa parliamentary group and the Social Democratic Party together with several MPs, proposed reducing the diesel excise tax for six months to the EU minimum level of €330 per 1,000 litres. The ministry estimated the budget losses from this step at €51.6 million: €14.9 million in 2026 and €36.7 million in 2027.
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Impact on prices and the government’s position
The Finance Ministry calculated that reducing the diesel excise tax to €330 per 1,000 litres could lower fuel prices by approximately €0.085 per litre. In its estimate, consumers would receive around 70% of the potential benefit from the tax reduction.
Finance Minister Jürgen Ligi cited the example of Latvia, where, after a temporary reduction in the diesel excise tax in April, its retail price fell by an average of €0.0495 per litre, compared with a maximum possible reduction of €0.086. According to Latvia’s competition authority, consumers received around 58% of the potential effect.
Ligi also said that this year’s increase in fuel prices is primarily linked to a reduction in supply due to the conflict in the Strait of Hormuz. In his view, stimulating demand through tax cuts will not solve the problem. Instead of broad excise tax reductions, the ministry proposes directing limited budget resources towards targeted support for the most vulnerable households and sectors of the economy.
The Finance Ministry also pointed to legal and technical shortcomings in the EKRE proposal: it lacks the full wording of the proposed legislative amendments and an impact assessment. The ministry noted that a reduced VAT rate on fuel, with the exception of natural gas, would contradict EU directives. According to the ministry’s estimate, reducing VAT only on natural gas would lower annual tax revenues by approximately €11 million.
