EU Warns Governments Against Tax Cuts To Counter Surging Oil Prices

by Ulrika Lomas, Tax-News.com, Brussels

13 September 2005

The European Commission has warned governments of member states to resist the temptation to cut taxes in an attempt to counter the effect of surging oil prices on national economies.

While the EU executive branch said last week that it would look favourably on tax relief for low income families, officials urged European Union members not to act unilaterally to address what it has dubbed the "petrol prices crisis" by doling out tax breaks to businesses which are being squeezed by the escalating cost of oil.

"Member states cannot give in to the temptation to cushion price rises with a unilateral tax reduction," EU Energy Commissioner Andris Piebalgs stated ahead of a meeting of the Oil Supply Group on Friday.

EU spokeswoman Amelia Torres added that: "Other measures that exist in compensating a particular sector in a particular country would obviously trigger calls from the same sectors in other countries or other sectors."

Far from lowering taxes, French Finance Minister, Thierry Breton revealed last week that he will consider imposing a new tax on oil firms if petrol prices are not reduced.

"We do not rule out the possibility of submitting to a vote by deputies a special tax corresponding to a special situation," Mr Breton announced.

The EC's warning appears however not to have been heeded by Hungary's Prime Minister, Ferenc Gyurcsany, who stated on Sunday that he would seek to bring forward a cut in value added tax, planned for January 2006, in order to help lower the price of a litre of petrol by around 3% to 4%.

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