Government makes token gesture on fuel tax in bid to limit impact of inflation

Given the unprecedented increase in fuel prices, the Portuguese Government has decided to reduce the fuel tax ISP (Tax on Petroleum Products) on a weekly basis, but only in line with increases in tax revenues from VAT caused by inflation.

It means that if there is an increase in VAT revenues of 5 cents per litre because of skyrocketing prices, the ISP will correspondingly be cut by 5 cents per litre as an offset.
The Portuguese Prime Minister, António Costa, said on Tuesday that from Friday it would refund through an equal reduction in ISP all potential increases derived from VAT based tax revenues”.
He added that at the moment Portugal “cannot make any changes to base VAT” tax levels by lowering VAT on fuel since “that would require the authorisation from the European Commission, as well as needing to be passed into law by the Portuguese parliament which currently is not fully operating”.
“So, what we can do is from Friday is estimate the price of petrol and diesel for the following week. Once this is done, we will know the predicable increase in State revenues from VAT, and thereby refund this amount in a corresponding reduction in the fuel duty tax ISP for the following week”, said the prime minister.
One aspect for travel consumers that the Government may not be able to mitigate is the rising cost of jet fuel which as gone up 43%.
This has increased the operating costs for airlines such as TAP which has around half of its fuel requirements reserved for the first half of 2022 ring-fenced against such inflation through hedging contracts. These costs, if they continue, will inevitably be passed on sooner or later to the consumer, and be reflected in an increase in flight tickets.
Jet fuel is now trading at US$ 158.86 a barrel compared to US$ 110.92 a barrel two weeks ago according to the International Air Transport Association (IATA).
“There are two critical aspects in the airline business that we can’t control. One is the price of fuel, and the other is the currency exchange market” said the CEO of TAP, Christine Ourmières-Widener at a recent conference.