Romanian authorities mull new dynamic excise duty mechanism to curb fuel prices

The Economic Committee, part of Romania’s upper legislative chamber, adopted a favorable report for the draft law on measures to reduce fuel prices on Monday, July 27. 

The bill must also receive the approval of the Senate plenary in order to continue its legislative process. If adopted, it will introduce, for the first time, a "dynamic excise duty" mechanism, under which the excise duty on fuel may be reduced by between 5% and 25%, depending on developments in pump prices.

The new version of the bill abandons the VAT reduction initially proposed and retains only the excise duty reduction mechanism, after the Ministry of Finance warned that a VAT cut would not have been compatible with European legislation and would have sent a negative signal to rating agencies. 

Former energy minister Bogdan Ivan said the bill creates the legal framework for government intervention during crises on the fuel market through the progressive reduction of the excise duty on diesel. 

"At the current pump price of diesel, we are talking about a reduction of RON 0.34 per liter of diesel. If we see an increase in international diesel and oil prices, the reduction could go to as much as RON 0.68, depending on the final price," Bogdan Ivan said, cited by Digi24.

According to him, the purpose of the measure is to keep the price of standard diesel around the threshold of RON 10 per liter, even in the event of further price increases on the international market. The measures are to be applied initially for a period of three months, with the possibility of extension by government decision. 

In addition, the Ministry of Finance will be able to update the level of the excise duty once every two weeks, depending on developments in Brent and Platts international quotations.

"Dynamic excise duty means that, depending on the price increase, it can decrease by between 5% and 25%. It is a much more flexible option, which gives us the possibility to act during the three months following promulgation through a Government decision, and every two weeks the Ministry of Finance will analyze the level of the excise duty and take action," interim finance minister Alexandru Nazare said.

He explained that the VAT reduction was dropped because the measure was not compatible with European legislation and would have affected the assessments Romania is expecting in the coming period from the rating agencies.

"We are expecting Fitch's report this week and Moody's report next week, and such announcements regarding VAT reductions would not have helped us at all in maintaining the rating," the minister added.

Nazare specified that the mechanism will be applied for a period of three months, with the possibility of extension, and that the budgetary impact is estimated at approximately RON 100 million per month, depending on price developments. At the same time, he warned that any price-capping measure also involves supply risks, which is why the authorities are in permanent contact with operators in the sector.

radu@romania-insider.com

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