The Ministry of Energy and Coal Industry (MECI) of Ukraine proposes a temporary reduction in the excise levied on oil products and a cancellation of the value added tax on imported oil, reports Interfax-Ukraine, referring to a copy of the bill that introduces such amendments to the Tax Code.
The amendments return the excise on gasoline to the original rate (effective until January 1, 2011), lowering the current tax by 27.5 percent — from 182 to 132 euroes per ton. The tax on diesel fuel is also to be lowered, but that on LP gas (40 euros/ton) will remain the same.
The zero VAT on imported crude oil may be introduced before January 1, 2012, says the news agency, helping improve the domestic oil refineries’ performance by lowering Ukraine’s dependence on imported fuel, considering that its share on the domestic market exceeds 50 percent.
If and when the Cabinet of Mi-nisters supports this fuel compromise, how will this affect the prices at Ukraine’s gas stations? The Day asked Serhii KUIUN, director, A-95 Consulting Group, for comment:
“There is this bill, indeed. It is being coordinated at the pertinent mi-nistries and agencies. I believe it means that the MECI has thus recognized the objective reality of mounting fuel prices in Ukraine and agreed to achieve a compromise in a European manner, the way they did it in Great Britain, for example. In Europe, the tax on gasoline constitutes 60-70 percent of its cost. In Ukraine, it is 60 percent (the cost of raw materials and refining), plus 30 percent worth of the tax, and 3-5 percent of the trader’s earning capacity. In other words, the government now has the largest capacity to regulate fuel prices. The central budget receives 3.30 to 3.50 hryvnias from each liter of gasoline sold. There is room for price maneuvering here. The government could lower this price by one, one and a half hryvnias, or even more. The bill offers an excise reduction that will lower the cost of one liter of gasoline by 50 and more kopiikas. Otherwise, the price may well jump to 10 hryvnias and to 9.5 hryvnias per liter of diesel fuel, with imported oil products up by 25 kopiikas per liter. A lower excise on diesel fuel may cause filling stations to lower their prices even further. Now about the zero rate of the imported oil VAT. The bill makes it clear that only the oil refineries will have this privilege, otherwise there will emerge intermediaries that will profit from this and damage the central budget.”
TO THE POINT
According to Prime Minister Mykola Azarov, the government is getting prepared to carry out yet another task aimed at regulating fuel prices. Ukraine will start prospecting for oil this year, and increase its extraction rate. He says Ukraine needs almost 10 million dollars’ worth of investments to increase the extraction rate by one million tons. If Ukraine could extract 70 percent of its oil consumption, Azarov believes it would be able to dictate its prices on the oil market.
