The European Commission has attacked a Polish move to lower VAT on motor fuels to protect consumers from surging prices caused by the conflict in the Middle East.
The Polish Parliament passed legislation allowing the government to set maximum fuel prices on a daily basis and cut VAT on fuel.
The European Commission reacted by saying that EU law does not allow member states to lower VAT on motor fuels from the standard rate, but EC spokeswoman Louise Bogey added that lowering excise duty is permitted.
Finance minister Andrzej Domański said the proposed VAT cut would cost the state budget around €200 million, while reducing excise duties would result in a monthly loss of around €150 million.
The legislation passed by Parliament introduces what amounts to a centrally controlled price cap while allowing retailers to charge less than the ceiling.
Under the law, the maximum price will be calculated based on average wholesale prices. There will also be cuts to VAT, from 23 per cent to eight per cent, and excise duties will be reduced to the minimum allowed by European law.
Opposition Conservatives (PiS) allied President Karol Nawrocki signed the legislation into law immediately, as the government’s move was in line with demands also being made by the opposition. It was passed without any opposition in Parliament.
Further measures planned by the Polish authorities include a so-called windfall tax on oil companies’ extraordinary profits made as a result of the surging global prices.
The PiS welcomed the government’s actions but argued they had unnecessarily been delayed. It claimed that during previous crises, such as the Covid pandemic and the rise in fuel prices caused by the war in Ukraine, the government of the day acted faster when their party was in power.
Jarosław Sellin, an MP for the opposition party, said on state radio Trójka that “the government waited for three weeks in order to continue to plug the hole in the state budget, benefitting from the crisis while the consumers got hit hard.”
The MP was alluding to the fact that Poland’s current budget deficit is one of the EU’s highest.
The government intervention comes as Poland grapples with rising fuel costs linked to the conflict in the Middle East. US and Israeli strikes on Iran have disrupted oil flows and led to the Strait of Hormuz, a crucial oil corridor, becoming unsafe for oil tankers.
Diesel prices in Poland hit a record high of €2.04 per litre, exceeding a previous record of 2022 after Russia’s invasion of Ukraine.
The government said the measures were needed to respond quickly “to the current situation on fuel markets, related to the war in the Middle East”. Prime Minister Donald Tusk that the government expected prices to fall by €0.28 per litre.
However, the reduction in price did not arrive over the weekend. There were reports that Polish state fuel giant Orlen, the biggest seller on the domestic market, actually raised its wholesale prices in advance of the government’s measures coming into force.
During a press conference on the government’s fuel price measures Tusk was asked about the growing trend of so-called fuel tourism, where German drivers travel to Poland seeking cheaper fuel.
Tusk said that Poland does not face the risk of fuel shortages, echoing assurances from pipeline operator PERN and gas transmission firm Gaz-System about diversified supplies and adequate reserves.
He said the government would monitor the situation and could take a cue from Slovakia, where authorities have introduced higher fuel prices for drivers of foreign-registered vehicles. “I will examine this mechanism in detail to see if it is effective,” he said.
However, the European Commission has warned that such measures are “highly discriminatory and against EU law” because they “undermine the integrity of our single market”. It has promised to “take the appropriate legal action” against Slovakia.
