Government to raise fuel tax again on Monday

This is reflected in the formula created by the government to smooth out increases: conversely, it also smooths out declines.

The government will raise the Petroleum Products Tax (ISP) again next week, confirming the likely substantial drop in fuel prices, which stems from lower average oil prices this week.

As announced yesterday by CNN Portugal, fuels should drop next week, maybe a lot. The “maybe” depends on the evolution of the international price of oil today and tomorrow, since, in the previous days, the price fell sharply. Today, Thursday, Brent is rallying (about 6% late morning to $104), but the week’s average is still well below last week’s (and the high of $139 checked on March 8 ). It would take a huge upside the next day and a half for that week’s average price to return to its prior level. Therefore, the prospect of a (significant) drop in fuel prices next Monday remains.

The paradox is that a fall in fuel prices implies that the government will raise the PSI again.

This is the result of the transitional formula created last week by the government to mitigate rising fuel prices. Aiming for fiscal neutrality – i.e. the state does not “benefit” more from the increase in petrol – the government has started to lower the FAI by the same amount as VAT receipts increase, thus maintaining the corresponding euro value in each liter of fuel.

Roughly, for every eight cent increase in the price at the pump, the FAI is reduced by 1.2 cents per liter – an amount identical to the increase in VAT revenue. The forecast pointed out by the executive for this Monday was that FAI fell 2.4 cents for diesel and 1.7 cents for gasoline.

Next week, the reverse is happening. Confirming lower fuel prices, which with yesterday’s data could lower the price per liter by more than ten cents, VAT receipts are falling – and soon the value of ISP is going back up.

Remember that prices are freely set by service stations, but there is generally a correlation between the final price and the evolution of oil prices. Also remember that there is no fixed day for fuel price increases or decreasesthey actually vary daily, but market practice in Portugal is to concentrate major changes on the first business day of each week.

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