Portugal to lower fuel tax to help offset price hikes

Portugal will lower the special tax levied on fuels from Friday to tackle an unprecedented spike in energy prices triggered by Russia's invasion of Ukraine, caretaker Prime Minister Antonio Costa said late on Tuesday. Costa said that every Friday the government would evaluate the price of gasoline and diesel for the following week, and estimate the increase in the state's VAT revenue.

Portugal will lower the special tax levied on fuels from Friday to tackle an unprecedented spike in energy prices triggered by Russia's invasion of Ukraine, caretaker Prime Minister Antonio Costa said late on Tuesday. Costa told a news conference in Lisbon that the cut on the special tax on fuels, known as ISP, will have no cost for the government as the extra revenues made on the value-added tax (VAT) would offset the cut.

In Portugal, western Europe's poorest country where close to 900,000 people make a minimum wage of 705 euros ($774) per m0nth, a diesel car with a 50-liter tank now costs around 90 euros to fill up. People have been calling on the government to cut fuel taxes, which currently account for about 50% of the gasoline and diesel retail prices.

Costa said it was not possible to cut VAT now because it needs approval from parliament, which is not in full function as the newly elected government is yet to be sworn in due to an election mess-up. Costa said that every Friday the government would evaluate the price of gasoline and diesel for the following week, and estimate the increase in the state's VAT revenue. It would then lower the fuel tax based on that amount to neutralize the fuel price increase.