House approves petrol tax cut by seven cents a litre (Update 2)

Parliament on Thursday passed a law cutting tax on petrol and diesel by seven cents a litre, as the finance minister announced an extension on the period for reduced VAT on electricity bills as relief to consumers.

The government bill reducing tax on petrol and diesel was fast-tracked through the House after getting the nod from the cabinet.

The reduction will apply from March 8 through to June 1.

Tax on heating fuel was also lowered by 6.4 per cent.

According to the memo accompanying the bill, the aim is to provide financial relief to consumers and businesses in an effort to alleviate the fallout from the Ukraine crisis and rising fuel prices.

Earlier in the day, Finance Minister Constantinos Petrides said cutting the tax on petrol was done to the maximum extent permitted under EU law, adding that Cyprus now has the lowest tax rates in the EU for those goods.

Thursday’s announcement comes as petrol station owners warned this week that the public must brace for further price hikes, with costs likely reaching a further 10-15 cents per litre in the next couple of weeks.

On Monday, UK petrol and diesel prices exceeded the “grim milestone” of 150p a litre for the first time, with further rises expected.

The growing international isolation of Russia over its invasion of Ukraine has led to a dramatic price hike.

Russia is both the world’s second-largest exporter of crude oil and refined petrol, and the largest exporter of natural gas, mostly via pipelines to western Europe. The EU and its allies have said they want to put maximum pressure on Russia, but not set off an energy crisis that hurts their own people and plunges the world economy into recession.

Meantime the cabinet also decided to extend the period during which a lower VAT rate applies for electricity – from 19 to 5 per cent for vulnerable groups, and from 19 to 9 per cent for all other households.

Last November, the government had cut the VAT rate for six months – covering three bi-monthly electricity invoices. That special temporary arrangement expired at the end of February. Now the lower VAT rate will be renewed until June.

Petrides said the two measures – petrol and electricity – will have a fiscal impact of around €40 million.