Government backs diesel excise duty cut of around 15%

RIGA - The government on Tuesday approved a fiscally neutral draft law prepared by the Finance Ministry on reducing the excise duty on diesel fuel by about 15 percent in order to mitigate the impact of the sharp rise in fuel prices on the economy and the population.

According to the ministry's calculations, this could reduce fuel prices by around 8.6 cents per liter, including value added tax.

Under the ministry's proposal, the excise duty rate on diesel would be reduced from EUR 467 to EUR 396 per 1,000 liters.

The government also approved a reduction in excise duty on labelled diesel for farmers, for which the excise duty rate will be cut from EUR 70 to EUR 21 per 1,000 liters.

At a press conference following the government meeting, Finance Minister Arvils Aseradens (New Unity) explained that, due to the rise in fuel prices, the state is currently generating additional monthly revenue of EUR 6.7 million in the form of taxes.

According to Aseradens, the state’s intervention in the fuel market over three months amounts to EUR 20 million and will be fiscally neutral, as it will be offset by the additional revenue. The reduction in excise tax on marked diesel fuel for farmers will also be fiscally neutral, according to calculations by the Ministry of Agriculture.

Meanwhile, regarding a possible reduction in the excise tax rate on gasoline as well, Aseradens said that the situation with gasoline prices is currently being closely monitored and that the Ministry of Economics will brief the government on it every two weeks.

"If the situation develops in an undesirable direction, the gasoline excise tax rate will also be reviewed," said Aseradens. He added that he has already informed the finance ministers of Lithuania and Estonia about the government’s decisions, and will inform the finance ministers of other European countries next week to coordinate joint action.

The finance minister added that, should fuel prices continue to rise, other compensatory measures will also be considered, though in Aseradens’ view, these must be fiscally neutral.

According to the ministry's calculations, this could reduce the price of labelled diesel by around 5.9 cents per liter, including value added tax.

The reduced excise duty rate on both diesel and labelled agricultural diesel is planned to apply from April 1 to June 30, 2026.

The ministry noted that the reduction will make the excise duty rate in Latvia the lowest in the Baltic states. Currently, Estonia has the lowest excise duty rate for diesel in the Baltics - EUR 428 per 1,000 liters, while Lithuania has EUR 553.6 per 1,000 liters.

At the same time, the Baltic countries - Lithuania, Estonia and Latvia - are coordinating action to reduce market shocks and the impact of fuel prices on citizens. Estonia had initially planned to raise excise duties on fuel from May 1, but is now planning to abandon this move, while Lithuania is moving towards similar solutions as Latvia, the ministry said.

The draft law provides a temporary solution to an emergency situation caused by global oil supply disruptions. Since the end of February, both oil and fuel prices have risen significantly - in Latvia, the retail price of diesel has increased by around 30 percent to around EUR 2 per liter.

The Finance Ministry pointed out that the increase in fuel prices is a significant burden for both businesses and households, as well as affecting public sector operations, including emergency medical, security and defense services. The ministry estimates that without intervention, the additional cost to the Latvian economy could reach around EUR 50 million per month.

At the same time, the ministry forecasts that the fiscal impact of the excise duty cut on the state budget could be close to neutral, as the increase in fuel prices boosts value added tax revenues.