Latvia lowers diesel fuel tax

RIGA - Latvia's higher diesel fuel prices are giving revenue to
Lithuania. The current trend is for transit truck drivers to fill up
in Lithuania where they can buy the cheapest fuel in the Baltics and
just drive nonstop through Latvia.

Therefore the Latvian Ministry of Finance has put forward legislation
to try to increase the amount of diesel fuel bought in Latvia. The
amount of revenue lost by the government to Lithuania is in the
vicinity of 35 percent.

Gundars Berzins, the minister of finance, introduced amendments to
drop tax on diesel fuel to stop the revenue leaks. The Latvian
parliament passed the amendments to the diesel fuel tax unanimously
June 15, lowering the tax by 25 percent, from 13 santims to 10
santims per liter.

"We are very pleased that this is happening, and that Parliament has
acted so quickly in passing the legislation," said Baiba Melnance,
ministry spokeswoman. "All three Baltic ministers of finance met and
discussions led to the decision that Lithuania and Estonia would not
raise the excise tax on diesel fuel. Berzins realized Latvia needs to
lower the tax."

Latvia has by far the most expensive diesel fuel prices in the
Baltics. Lithuania was 85.7 percent cheaper than Latvia. Estonia was
41.3 percent cheaper. Fuel traders will now be purchasing diesel fuel
at a saving of 3 santims ($0.05). The Ministry of Finance is
predicting a 15 percent rise in diesel fuel consumption after the
amendment takes effect July 1.

The current price of diesel fuel is 34 santims ($0.56) a liter. Baiba
Ozola, a spokeswoman from Shell Ltd., said consumers will receive
the benefits of the lower tax on diesel fuel.

"Petrol companies are losing money with the high price of diesel. To
not lower the price will mean loss of trade," said Ozola.

"The three santims saved by diesel fuel traders will result in a
3-santim to 3.5- santim saving for customers. Other industries will
also benefit from the lower tax. With the cuts the forestry industry
should grow by 35 percent," said Melnance.

Otto Zvagins, spokesman from the Latvian Forestry Service, said the
decrease in diesel tax could help, but not much.

"The reduction in diesel prices will help the truck driving companies
and companies in forestry. The industry as a whole will not see a 35
percent rise," said Zvagins.

Bruno Barons, spokesman from the Latvian Farmers Federation, said the
benefit to rural communities from lowering the tax will be of great
assistance to farmers.

"Farmers need their tractors and machinery for their livelihood. The
problems farmers are experiencing economically make it very hard to
afford diesel fuel," said Barons. "Now that the government has
realized diesel is too expensive here, the farmers will be able to
save some of their hard-earned money."

The new amendment not only delivers a drop in the tax, but also an
agreement that the price for diesel cannot be raised until 2003. The
same agreement has been reached by both Lithuania and Estonia.

"Local consumers will benefit greatly by the changes, but it will be
diesel fuel traders who will benefit most. The decrease in diesel
fuel costs will give traders a great opportunity to attract transit
transport carriers. All three Baltic states will principally have the
same price. Lithuania, however, will still be cheaper by three
santims. The government's budget will be tighter this year, and the
ministry cannot afford to lower the tax any more," said Melnance.

Diesel fuel traders are pleased. The new legislation will not only
increase the amount of diesel being purchased but cut the levels of
contraband diesel fuel, said the traders.

"Lower taxes will cut the amount of black market diesel traded in
Latvia. It is logical that the government had to do something," said
Janis Darzins, spokesman from the Lat-Petroil company.

Aleksey Dratcahev of the company Ovi said it is a very good idea, but
more details need to be known. The amount of contraband should
decrease on the market, he said.

"How much will it help the consumption rate? Only time will tell,"
said Dratcahev.

The company Lukoil-Baltija said use by consumers and transit carriers
will definitely rise.

"It is the best thing to happen. Latvia has the highest prices for
diesel fuel in the Baltics. Transit transport is just passing us by.
The increase will not be large, but it will help in the long run,"
said Raims Kogans, spokesman for Lukoil-Baltija.

The boost to the economy is not the only reason the Ministry of
Finance put forward the amendments to the excise duty on diesel fuel.
The government needs to conform to European Union standards.

"We need to follow EU's guidelines on taxes. The tax levels set by
EU have been lowered because of the weakening Euro. The ministry has
had to meet the EU guidelines on taxes and lower the excise duty on
diesel fuel," said Melnance. "The 25 percent saving on diesel fuel
tax is not just because of the EU. The main reason is to have diesel
fuel prices in line with the other Baltic states."