Polish government to cut VAT on fuel as diesel prices rise to all-time high

Keep our news free from ads and paywalls by making a donation to support our work!

Notes from Poland is run by a small editorial team and is published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.

This is a breaking news story and may be updated as events unfold.

Poland plans to roll out a package of measures to curb rising fuel costs driven by the war in the Middle East, the government has announced. The measures include cutting VAT on fuel to 8%, reducing excise duty, and introducing a daily cap on fuel retail prices.

Prime Minister Donald Tusk said he hoped the measures will reduce retail fuel prices by around 1.2 zloty (€0.28) per litre and could be implemented before Easter.

The announcements come a day after retail diesel prices in Poland hit a record high, driven by the United States and Israel’s war in Iran, as well as Tehran’s decision to effectively close the Strait of Hormuz, a key shipping route for about 20% of global oil and liquefied natural gas supplies.

Diesel prices rose on Wednesday to an average of 8.69 zloty (€2.04) per litre, exceeding levels last seen in October 2022, while average retail prices for 95-octane petrol stood at 7.14 zloty per litre and 7.89 zloty for 98-octane petrol, data from e-petrol.pl showed.

To bring prices back down, the government plans to cut VAT on fuel to 8% from 23% and reduce excise duty by 0.29 zloty per litre for petrol, and by 0.28 zloty per litre for diesel, to the minimum level required by the European Union, Tusk said.

Finance minister Andrzej Domański said on Thursday that slashing VAT on fuel would cost the state budget around 900 million zloty a month, while cutting excise duties would result in a monthly loss of around 700 million zloty. He explained, however, that the tax rates would be adjusted to changing market conditions.

Tusk added that the government also plans to introduce a cap on fuel prices to avoid a repeat of past situations where, despite tax cuts, “the final prices at the petrol station for the customer not only failed to fall…but actually rose”.

The maximum price will be set each day by the energy minister based on the average wholesale price index and minimum operating costs. Further planned measures include a so-called windfall tax on oil companies’ extraordinary profits made as a result of surging global prices.

The opposition Law and Justice (PiS) party, which had previously tabled its own bill to reduce VAT, said that the government’s move came too late.

“It took Tusk almost three weeks to draft the bill on reducing fuel prices, which I had proposed on 9 March,” said Przemysław Czarnek, PiS’s candidate for prime minister in next year’s elections.

Parliament will today start working on government bills to introduce the measures, said Włodzimierz Czarzasty, speaker of the Sejm, the more powerful lower parliamentary chamber.

He added he expects votes in both the Sejm and the upper-house Senate to take place on Friday, and for the bills to reach the desk of opposition-aligned President Karol Nawrocki for final approval. The president can sign the bill into law, veto it or send it to the Constitutional Tribunal for verification.

State-owned energy giant Orlen has already begun cutting its wholesale petrol and diesel prices. However, this has not yet been reflected in prices at petrol stations.

Over the week until Wednesday, the average price of diesel jumped by 0.93 zloty, or around 12%, according to e-petrol.pl, The lowest prices – 8.64 zloty per litre – were recorded in the eastern Podlasie and Lublin provinces, while Lower Silesia in southwestern Poland recorded the highest price of 8.76 zloty.

During a press conference on the government’s fuel price measures, the prime minister was asked about the growing trend of so-called fuel tourism, whereby drivers from Germany travel to Poland seeking cheaper fuel.

He said the government would monitor the situation and could take cues from Slovakia, where authorities plan restrictions on cross-border fuel purchases due to a large number of Polish drivers arriving at Slovak petrol stations. “I will examine this mechanism in detail to see if it is effective,” he said.

Tusk added 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.

​
Notes from Poland is run by a small editorial team and published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.

Main image credit: Grupa Orlen

Olivier Sorgho

Olivier Sorgho is senior editor at Notes from Poland, covering politics, business and society. He previously worked for Reuters.