Lower taxes on motor fuels in 2023

Under the proposed amendment to the law, the value added tax rates on motor fuels will be adjusted as of 1 January 2023.

As the amendment of 30 September 2022 specifies in more detail, the change is to be made to Act No. 222/2004 Coll. on Value Added Tax, as amended. The change in VAT will apply to both motor petrol and gas oil, more commonly called diesel. The new VAT rate would be 8% of the tax base. The amendment is a response to strong public pressure over the high prices of motor fuels, which have long been unsustainable.

The reduction in the VAT rate on motor fuels may in itself lead to a reduction in the overall price of motor fuels, but the impact cannot be predicted precisely given how volatile the prices of these commodities have been recently.

Example:

At the current price, 1 L of petrol costs a total of €1.66. The price excluding VAT is therefore €1.38/L. With the new VAT rate, the tax burden will be €0.11 and the total price will fall to €1.494/L.

However, this change is not favourable for all taxpayers. Individuals, sole traders or, more generally, individuals or legal entities that are not VAT payers will be positively affected by this change. Given the expected fall in the overall price of motor fuels, their costs of buying fuel will go down.

VAT payers, however, will not benefit from this change, precisely because of their tax liability and the VAT they have to pay. This is calculated as the difference between input VAT and output VAT. Input VAT covers all the goods and services that the taxable entity buys/consumes. Output VAT, on the other hand, covers all the goods and services sold. In terms of VAT classification, motor fuels also fall into the category of inputs. If their rate falls to 8%, we can expect a lower amount of input VAT, and therefore the difference between inputs and outputs (the so-called balance) will show a higher value.

Example:

Take a VAT payer that is a courier company. In a given month, it purchased only motor fuels, totalling €200. The basis for output VAT will be the transport services provided, also priced at €200.

Using the current rates of VAT, the calculation of its VAT liability would therefore look like this:

Input VAT base: €200 Output VAT base: €200

Input VAT rate: 20% Output VAT rate: 20%

Input VAT: €40 Output VAT: €40

Total VAT liability = €40 (output) – €40 (input) = 0

Using the new rates of VAT, on the other hand, the calculation of its VAT liability would look like this:

Input VAT base: €200 Output VAT base: €200

Input VAT rate: 8% Output VAT rate: 20%

Input VAT: €16 Output VAT: €40

Total VAT liability = €40 (output) – €16 (input) = €24 tax liability

You can view the entire bill at NRSR.SK