Poland reintroduces VAT cut and daily price caps to lower fuel costs for drivers

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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.

Poland’s government has announced that, from Monday, it will reintroduce some of the measures that were used earlier this year to lower prices for consumers at petrol stations amid the energy crisis triggered by the ongoing conflict in the Middle East.

The package, known in Polish as CPN and which will be in place from 17 August until at least 31 August, includes reducing VAT on fuels from 23% to 8% and introducing retail consumer price caps on fuels set daily by the energy minister.

Announcing the measures on Thursday, Prime Minister Donald Tusk said they should result in prices falling by around 1 zloty (€0.23) per litre. Currently, average retail prices are 7.29 zloty for 95-octane petrol and 8.09 zloty for diesel, according to Polish price monitoring service E-Petrol.

Tusk acknowledged that CPN will entail “serious costs” for the state budget. When similar measures (which also, unlike now, included cuts in excise duty on fuels) were in place between the end of March and end of June, they cost the state an estimated 4.7 billion zloty.

On Thursday, the prime minister renewed his criticism of opposition-aligned President Karol Nawrocki for last month refusing to sign into law a windfall tax on fuel companies’ excess profits this year.

The government said that the tax, which would have raised an estimated 4 billion zloty, was intended to help cover the costs of fuel subsidies. The profits of many fuel companies have boomed during the crisis, with Polish state energy giant Orlen last week announcing record half-year results.

Nawrocki’s chancellery, however, has argued that fuel companies would seek to pass the costs of tax increases onto consumers, thereby increasing prices.

CPN was first introduced in March in response to soaring fuel prices in the wake of US and Israeli attacks on Iran and subsequent disruption to shipping in the Strait of Hormuz, a key route for global oil and liquefied natural gas supplies. CPN subsequently helped bring Polish fuel prices to among the lowest in the EU.

Since the measures were withdrawn in June, prices at the pump in Poland have risen significantly, placing pressure on the government to again cushion the blow for consumers. E-Petrol reports that prices have recently started to fall, but remain well above the levels seen before the crisis.

Economists at PKO, a major bank, wrote on Thursday that higher fuel prices in July, which stemmed from the expiry of CPN and an increase in global oil prices, were the main drivers of inflation accelerating from 2.5% in June to 3.0% last month.

On Thursday, Tusk claimed that the re-introduced CPN would lead to Poland having among “the lowest prices in Europe”, helping “possibly millions of Polish drivers, on critical days, when they return from holidays”. But he also acknowledged that fuel would “still be expensive”.

Nawrocki’s chief of staff, Zbigniew Bogucki, however, criticised the government for only introducing the subsidies now, and not earlier.

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: ClickerHappy / Pexels

Olivier Sorgho

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