Initiative regarding solidarity payments by fuel retailers should be re-evaluated - Economics Ministry

RIGA - The initiative regarding a solidarity payment by fuel retailers should be reevaluated, the Ministry of Economics (EM) told LETA, commenting on the Competition Council’s conclusion that the reduction in the diesel fuel excise tax did not fully pass through to prices.

The EM notes that in March, before the excise tax reduction took effect, the ministry warned that the tax reduction might not be passed on to consumers in full. Therefore, the Ministry of Economics submitted to the Saeima a draft law on a solidarity payment by fuel retailers -a mechanism that would require a payment in cases where the actual fuel price exceeds an objectively calculated reference price, which also includes the excise tax reduction, by more than 3 percent.

The Saeima did not support the bill, thereby sending a clear signal to the industry regarding the easing of oversight, limiting the tools available to the supervisory authority for effective oversight.

The Competition Council’s assessment shows that the Ministry of Economics’ concerns were justified-prices excluding discounts reflected only 58-64 percent of the tax reduction. If the tax reduction had been fully passed on, consumers would have saved approximately EUR 20 million, but in reality, the price reduction amounted to about EUR 12 million.

The remaining approximately EUR 8 million did not make it into final prices; EUR 1.5 million euros remained in the state budget as value-added tax (VAT), because, since prices did not decrease in full, a larger tax base remained, while up to EUR 7 million remained within the fuel retail chain. According to the Ministry of Economics’ estimates, the state lost approximately EUR 17 million in retail excise tax revenue from April through June.

At the same time, the Ministry of Economics’ informs that it has made one key conclusion of this situation: a tax rebate without a mechanism to ensure it reaches the consumer achieves its goal only partially. The Ministry of Economics believes that the solidarity payment initiative warrants a reassessment.

As reported, the reduction in the excise tax on diesel fuel from the beginning of April through the end of June provided significant benefits to consumers, however, the tax cut was not fully reflected in retail prices as diesel prices, excluding the discounts, reflected approximately 58 percent to 64 percent of the tax reduction, the Competition Council informed LETA.

The impact of the reduction in the excise tax was assessed by the KP by analyzing price trends before and after its implementation, and by taking into account other factors affecting fuel prices. The analysis was based on data covering the period from January 1, 2026, to June 22.

The KP concluded that, throughout the entire period of the excise tax reduction, diesel fuel prices at the pump were, on average, 4.95 cents per liter lower than they would have been if the excise tax reduction had not been implemented. This corresponds to approximately 58 percent pass-through of the excise tax reduction to final consumer prices.

The Competition Council also found that the extent of the pass-through of the excise tax reduction was not uniform over time. The most pronounced price decrease was observed during the first week following the reduction in the excise tax rate. In the subsequent period, the effect diminished and, as of April 6, 2026, stabilized at approximately 4.52 cents per liter, or 53 percent of the projected tax reduction. Thus, the initial price reaction was stronger than the sustained effect in the following weeks, the Competition Council concluded.

The synthetic gap-to-gap estimate showed a pass-through of approximately 61 to 64 percent, depending on the period prior to the tax reduction included in the analysis. The KP explains that these results are similar to those of the main panel data regression and confirm that the conclusions do not vary significantly depending on the chosen method or analysis period.

Overall, the econometric analysis conducted by the KP indicates that the excise tax reduction from the beginning of April to the end of June provided significant benefits to consumers; however, the reduction was not fully passed on to pump prices, as diesel pump prices reflected approximately 58 to 64 percent of the tax reduction.

The Competition Council emphasizes that the incomplete pass-through of the excise tax reduction to pump prices does not, in itself, mean that retailers have increased their markups. Data available to the KP show that markups generally remained relatively stable, and therefore part of the tax reduction may also have resulted, for example, in the form of larger or longer-lasting discounts, which were not analyzed separately in this assessment.

The KP will continue to monitor the fuel market until the end of 2026. In its future work, the KP will assess the dynamics of retail fuel markups, the pass-through of the excise tax reduction to diesel prices, and will also conclude its assessment of the market and complete its analysis of the wholesale level of fuel prices.