Does the EU VAT directive allow tax to be charged on tax in fuel prices?
A discussion on lowering fuel prices highlights that the EU VAT directive lets VAT be calculated on top of excise duty already included in the price, meaning a 10–15 cent per litre reduction could theoretically be achieved without changing any tax rate.
Following Prime Minister Andris Kulbergs' suggestion that fuel prices could be temporarily lowered by 20 euro cents, an argument has emerged that a similar effect could be achieved without altering any tax rate at all — simply by ending the EU-wide practice of applying one tax on top of another.
Article 78 of the EU VAT Directive, mirrored in Section 39(1) of Latvia's Value Added Tax Law, requires that the VAT taxable amount include all other taxes and duties except VAT itself. In practice, this means VAT on fuel is calculated on top of the excise duty that is already built into the price.
The calculation gap
Using an estimated fuel price of 1 euro per litre, two scenarios were compared: the current system, where VAT is calculated on the full final price, and an alternative where VAT would apply only to the product price, excluding other duties. The difference between the two ranges from 10 to nearly 15 cents per litre of fuel, depending on the level of detail in the calculation.
The Court of Justice's position
The Court of Justice of the European Union has previously reviewed similar citizen complaints and concluded that excise duty is legally imposed at the production or import stage rather than at the point of sale, making it an inseparable part of the product's value and therefore subject to VAT. The court justifies this arrangement on grounds of accounting and administrative convenience rather than economic logic.
General EU legal principles prohibit taxing the same transaction with the same tax twice, but nothing prevents one tax from being applied on top of a different tax — which is exactly the situation with excise duty and VAT on fuel.
Possible solutions
Two options are mentioned: temporarily reducing specific taxes, such as excise duty or storage fees, which would yield an effect of roughly 12 cents, or changing the EU VAT directive itself in the long term to eliminate tax-on-tax calculation. Both paths are expected to face practical implementation challenges.
