Estonian gas price reaches record

TALLINN - As a result of higher excise duty on gasoline, Estonian service stations increased the price per liter on Dec.1. The price of gasoline 95-octane reached a record high of 9 kroons ($ 0.58).

According to the government's plan to follow European Union rules, the excise duty will increase by half a kroon in December 2000 and 0.30 kroon in December 2001, and reach the 4.30 kroon level per liter by the year 2002. Excise duty on diesel fuel will be 4.30 kroons per kilogram.

The price of gasoline 95 for example, which is about 9 kroons per liter at present, includes a 4.15 (3.50 kroons + 18 percent VAT) kroon excise duty.

Toivo Jurgenson, minister of transport and communications, made a proposal to the minister of finance to increase excise duty over a much longer period of time by 0.15 kroon per liter instead of 0.50 kroon, spokesman at the Transport and Communications Ministry Aap Tanav said. Lemmi Oro, head of the tax department at the Ministry of Finance, announced that she did not have any information on the possible decrease of excise duty.

Tanav said that the increase of gasoline price would influence the transport sector the most.

"Higher petrol costs in the transport sector bring along an overall increase of prices. The excise duty will affect over half a million cars," said Tanav.

Epp Kiviaed, director general at Eesti Statoil, said that the increase of gasoline price had not brought along any noteworthy drop in sales. She is concerned over the possible increase of the illegal market, the size of which according to some estimates is about 20 percent of the fuel market. "The process of increasing excise duty should be slowed down. Excise duty should be smaller in order to receive the predicted sum in the budget," said Kiviaed.

According to Kaljo Aamer, counselor to the Estonian Oil Association, the exports of gasoline decreased from 200 million kroons to 177 million kroons in the first half of 1999 compared with the same period of last year.

"As a result of a higher excise duty, sales of petrol may decrease and the share of the illegal market may increase as it happened with tobacco and alcohol," said Aamer. "It is not wise to increase excise too much. The Estonian circumstances and standard of living should be taken into account before adopting European excise norms."