Latvia's Economy Ministry proposes fuel VAT cut — prices could drop 17 cents per liter

Latvia's Economy Ministry has drafted a proposal to cut value-added tax on fuel from the current 21% to 12%. According to the ministry's calculations, this change could lower diesel prices by roughly 16–17 cents per liter and gasoline prices by 14–15 cents per liter.

However, the ministry stresses an important condition: such a price drop would only materialize if fuel retailers pass the tax reduction fully through to pump prices rather than using it to boost their own margins. The ministry says it is essential that drivers actually feel the benefit in their wallets.

Broader economic impact

The ministry notes that high fuel prices affect more than just individual drivers — they also raise costs across transport, manufacturing, agriculture, and logistics sectors, which can in turn push up prices for goods and services more broadly. The ministry estimates that cutting fuel VAT could reduce the overall price level in the country by about 0.3%.

Other measures under consideration

The VAT cut is not the only option currently being weighed by the government. Officials are also considering reducing excise duty on fuel to the lowest level permitted under European Union rules, as well as revising requirements related to fuel reserves and biofuel content. Prime Minister Andris Kulbergs has previously said that all these measures combined could reduce fuel prices by as much as 20 cents per liter.

The Economy Ministry has also left open the possibility of reviving a proposed solidarity payment for fuel retailers, which would apply in cases where pump prices rise significantly more than justified by changes in oil product costs and other expenses. A similar proposal was previously developed and won government approval but later failed to gain sufficient support in the Saeima, Latvia's parliament.