WARSAW, March 26 (Reuters) - Poland's government has decided to cut VAT and excise tax on fuels, TVP Info reported on Thursday, citing sources, as Warsaw moves to shield drivers from the impact of the
Poland to cap fuel prices, Orlen shares sink
Government Measures to Address Rising Fuel Costs
By Barbara Erling
Overview of Announced Policies
WARSAW, March 26 (Reuters) - Poland will slash fuel taxes, cap pump prices and may pursue a windfall tax on energy companies, the prime minister said on Thursday, measures set to be welcomed by drivers but which sent shares in state-controlled refiner Orlen tumbling.
Governments across Europe are scrambling to soften the Iran war's impact on fuel costs, with countries including Romania and Hungary already moving to cap prices.
Impact on National Budget
The measures will reduce budget revenue by an estimated 1.6 billion zlotys per month, Finance Minister Andrzej Domanski said during an extraordinary government sitting on Thursday afternoon.
Poland has been grappling with a rapid widening in its budget deficit, which is expected to run at the European Union's highest level this year in relation to economic output, according to European Commission forecasts.
Details of Tax Reductions
Earlier on Thursday, Prime Minister Donald Tusk told a news conference VAT on fuel will fall to 8% from 23%, while excise duty will be cut to the EU minimum - 29 groszy (cents) for petrol and 28 groszy for diesel.
He added that Poland is working on a windfall tax for oil companies.
Market Response
Shares in Orlen closed down 2.2%, paring losses after suffering as much as 6.6% following the announcement of the decision.
Expected Effects on Fuel Prices
"Even before the (Easter) holidays, we should see prices fall by about 1.2 zloty per litre for all fuel," Tusk said.
"We want this reduction to have a real impact on prices, not to fill the pockets of those involved in the fuel trade," he added. "For the period of application of these VAT and excise tax reductions, we will introduce a maximum retail price for fuel."
Political and Public Reactions
The measures were coming too late, according to Przemyslaw Czarnek, deputy leader of the nationalist opposition party Law and Justice (PiS), who called on the government to compensate farmers for higher fuel prices already paid during the sowing season.
Comparisons with Other Countries
POLAND MAY FOLLOW SLOVAKIA'S EXAMPLE
Tusk said Poland would act if needed to stop foreign drivers taking advantage of the price cuts, and would study Slovakia's system under which cars with foreign plates pay more than local vehicles at petrol stations.
"We will not hesitate to use such tools if necessary," he said. "We will monitor these few days to see if the scale requires such actions."
Industry and Economic Context
Tax Structure and Wholesale Prices
Taxes and levies, including VAT and excise duty, account for more than 40% of pump prices.
While Orlen says it has cut retail margins to "nearly zero", wholesale diesel prices have risen by about 50% since late February after the U.S. and Israel attacked Iran and Tehran launched strikes on Gulf states.
Opposition Criticism
Soaring fuel costs have become a flashpoint for the nationalist opposition, which has accused the government of acting too slowly and points to several European countries that have already rolled out relief measures.
Reporting Credits
(Reporting by Barbara Erling, Alan Charlish, Pawel Florkiewicz, Marek Strzelecki, Anna Wlodarczak-Semczuk and Karol Badohal. Editing by Louise Heavens and Mark Potter)
