Temporary reduction of excise duty on fuel

A temporary reduction in excise duty is one of the government's proposed ways to address the sharp rise in fuel prices. Fuel prices rose to record highs by mid-March because of the Russian invasion to Ukraine, which led to higher oil prices and a weakening of the Czech crown against the US dollar. The price for a litre of petrol rose to CZK 47.26 during this period, while the price of diesel reached CZK 49.57 per litre.

Other proposals attempting to address the impact of this surge in prices include the abolition of mandatory blending of bio-components into fuels and the abolition of road tax for some vehicles. However, the opposition considers these proposals insufficient and suggests, for example, amending the VAT Act in such a way that the fuel would be exempted from VAT with a VAT refund claim.

Thanks to the approved amendment, the excise duty on petrol will fall from the current CZK 12.84 per litre to CZK 11.34 per litre and on diesel from the current CZK 9.95 per litre to CZK 8.45 per litre. Thus, this reduction may be reflected in a decrease in the price of fuel by up to CZK 1.80 per litre at petrol stations, since excise duty also enters into the tax base of VAT. The temporary reduction will also affect the amount of excise tax refunds to persons using these fuels for agricultural primary production or forestry (so-called green diesel), from the current CZK 8.50 per litre to CZK 7.30 per litre.

The Ministry of Finance has been collecting data on the margins of fuel retailers since about mid-March and subsequently extended the price control to fuel distributors, i.e., payers of excise duty. To ensure that the reduced tax is reflected in the final prices for drivers, it will monitor not only the retail price but also the wholesale margin until the end of September. However, the reduction will only affect fuel that is put into so-called free tax circulation in the period between the beginning of June and the end of September, so it will not apply to fuel that is produced during this period but not put into free tax circulation.

We would also like to draw your attention to the fact that on 14 May 2022, a decree prepared by the Ministry of Labour and Social Affairs of the Czech Republic came into force, which changes the rates of domestic business travel reimbursements. The Ministry is authorized to do so by the Labour Code, whereby it has the possibility to exceptionally adjust the rate of basic compensation for the use of road motor vehicles, meal allowances or the average price of fuel once any of these prices increase or decrease by at least 20 %, according to data from the Czech Statistical Office. Such a price increase actually happened during March, as mentioned above.  According to the Decree, the average price for calculation of travel reimbursement for petrol increased by CZK 7,40, from CZK 37,10 to CZK 44,50 per litre, and for diesel, it increased by CZK 11 from CZK 36,10 to CZK 47,10 per litre.

As mentioned above, due to high fuel prices, the government has also introduced an amendment to the Road Tax Act, which will abolish the road tax for vehicles up to 12 tonnes. For trucks and trailers over 12 tonnes, road tax rates will then be reduced to bring them closer to the European minima set by the Eurovignette Directive. However, in this case, unlike the reduction in excise duty, this is a permanent abolition of road tax connected also with exemption from the obligation to submit Road Tax returns and from other administrative matters.

In connection with the road tax, we would like to remind you of our earlier article "What not to forget in taxes even in these difficult times!", which reported on the decision of the Minister of Finance on the remission of the sanctions and advance payments, which was issued in response to the Russian invasion of the territory of Ukraine, on the basis of which the advance payments on the road tax were waived.