Nova workboard

a blog from young economists at Nova SBE

Why can’t we set the right fuel price?

Every week all of us, especially drivers, hear news about relative changes in the price of the different types of fuel. These adjustments are perfectly normal. Although, this topic is sometimes subject to some discussion and differences of opinion.

As Portugal is one of the European countries with the highest tax burden in fuel [1], then some drivers, especially residents living near the border between Portugal and Spain, and workers from transport companies tend to fill in their deposits in Spanish stations. Obviously there are consequences arising from this issue, namely the shift of consumption from one country to another and the loss of tax revenue that the Portuguese Government would receive from such taxes – in 2007, under other economic circumstances, Deloitte predicted that the shift of consumption to Spain could lead to losses of 84 million Euros [2].

This March, the Portuguese Minister of the Economy requested people living near the border to stop filling up in Spain, once by doing so, they would be paying taxes there instead of in their country, which would not be positive for the Portuguese public accounts [3].

But where does the difference in prices comes from? In Portugal, to the market value of fuel, are added the values of VAT, ISP (Imposto sobre Produtos Petrolíferos), the carbon tax, an extra biodiesel cost and some other contributions [4] in such an amount that, on average, fill in a 60 liter deposit becomes, cheaper in Spain by fifteen Euros [5].

The fact that the prices of fuel in Portugal are so high in comparison with other European countries, have a negative impact both on families (especially the lower income ones), and on companies, which use fuel for their businesses.

Thus, which measures can be discussed to improve families and companies’ situation, while at the same time allowing the country to keep receiving tax revenues?

Once fuel taxes impose a greater tax burden in the poor, as they are regressive taxes, the decrease of the price of the fuel could be very pertinent especially for those lower income families. Such measure would allow them to have more disposable income which could be spent in other consumption goods, increasing Government’s revenues with other taxes.

Moreover, from the companies’ perspective, several measures were already approved by the Government, like the partial tax refund in professional diesel for some companies in four gas stations near the border [6]. This policy, if extended to the remaining country, creates incentives for companies to respond to the minister’s appeal and not shift consumption to Spain. As companies would reduce their variable costs, they would become more profitable (and more competitive) leading to greater income taxes for the Government. For the same purpose (or alternatively), a specific lower-priced fuel could be produced for other economic activities, like the green fuel was created for agricultural purposes.

This issue is likely to keep under scrutiny as long as the three sides – families, companies and State – are not fully satisfied with the policy results.

Miguel Madeira, nº 3117

References:

[1] Prado, M; “Impostos atiram Portugal para os cinco países com a gasolina mais taxada da Europa”; Jornal Expresso em 04/02/2016; http://expresso.sapo.pt/economia/2016-02-04-Impostos-atiram-Portugal-para-os-cinco-paises-com-a-gasolina-mais-taxada-da-Europa

[2] Estudo Deloitte feito para a APETRO; Artigo de Opinião nº 44; Junho de 2007; http://www.apetro.pt/documentos/folha44.pdf

[3] Delgado, H; “Ministro pede a portugueses para não abastecerem em Espanha”; Diário de Notícias em 11/03/2016; http://www.dn.pt/portugal/interior/ministro-da-economia-pede-a-portugueses-para-nao-abastecerem-em-espanha-5072884.html

[4] Inf. 26 do Website da APETRO; “A evolução da fiscalidade sobre os combustíveis desde a liberalização do mercado”; em 03/11/2014; http://www.apetro.pt/index.php?option=com_content&task=view&id=343&Itemid=191

[5] Malhão, M; “Combustíveis: abastecer em Espanha rende 15 euros num depósito”; Diário Económico em 14/05/2016; http://economico.sapo.pt/noticias/combustiveis-abastecer-em-espanha-rende-15-euros-num-deposito_249431.html

[6] Ofício Circulado N.º 35.060, 2016-09-13; Autoridade Tributária e Aduaneira

 

 

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Author: studentnovasbe

Master student in Nova Sbe

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