Electricity subsidy extension, fuel tax freeze ends

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The government plans to extend a subsidy on electricity bills introduced by the previous administration but will discontinue a freeze on consumer fuel tax.

According to Phileleftheros daily, quoting government sources, President Nikos Christodoulides will extend a subsidy on electricity bills until the end of June.

The scheme was introduced in September to cover the increase in bills resulting from a government’s decision to reinstate VAT to 19% after lowering it to 9% for a ten-month grace period.

It foresaw discounted bills of up to €68.72 and was to expire at the end of April.

And depends on the level of consumption ranging from 50% – 85% for households, commercial and industrial charges. In contrast, it is 100% of price increases for vulnerable households.

The measure has benefitted some 449,000 households and 111,500 businesses. The estimated cost of the measure from September 2022 until the end of April is €95 mln.

The decision comes as EAC predicts the next electricity bill will be lower by 6.5% due to the reduction in the charge per Kw, resulting from the drop in fuel prices.

Fuel supplied to EAC is still much higher than before the crisis caused by the pandemic and the invasion of Ukraine.

For April, the weighted average fuel price is €869 per metric tonne (last year, it was €845), compared to €931 in March and €910 in February.

The cost of fuel bought by the EAC reached historic heights in the summer of 2022 when the weighted average price was slightly above €1,000 per metric tonne.

In December, the average fuel price was €975.

No tax freeze

On the other hand, the government has no plans to continue the freeze on the consumption tax on fuel, which offered relief to consumers during a time when prices at the pumps spiked, powered by the war in Ukraine and sanctions on Russia.

The fuel tax exemption was introduced in March 2022 to buffer a hike in petrol prices.

Under the cost-of-living measure, 7 cents per litre is reduced from the price of petrol, 8.3 cents for diesel and 6.4 cents for heating oil.

In March 2022, when the reduction in consumption tax started, the average price of 95 octane unleaded petrol was €1.440, while now the average price across Cyprus for 95 octane is €1.404.

The tax freeze has cost the state €100 mln in lost revenue but offered drivers a respite from hiking prices.

If the consumption tax is reinstated, prices will go up, while concerns over a new wave of hikes in fuel prices follow production cuts decided by the OPEC+ countries.