The heating oil tax conundrum

Energy issues kept the government busy yesterday, with heating oil, the electricity grid and the prospects of the Public Power Corporation (PPC) being the subject of meetings involving Prime Minister Costas Karamanlis and officials from the Economy and Development ministries. Taxing heating oil appears to be the thorniest issue, even though distribution of heating oil begins on November 1. The government, desperate for higher revenue since its revenue targets as set in the 2005 budget have proved too optimistic, wishes to crack down on illicit trade of oil and oil products. One cause of illicit trade is the big difference between taxes on diesel fuel and the much lower ones on heating oil. With the two fuels being essentially the same, heating oil is often illegally sold as diesel fuel. The government’s proposal to harmonize diesel fuel and heating oil taxes has got consumers up in arms. With the price of oil still at near-record levels and people beginning to complain about other government measures that will restrict income, ministers are aware that a very expensive heating oil would be potentially explosive. As soon as the issue was raised, the government had promised there would be a rebate for the extra tax, but this appears to be too complex. After talks between officials from the Economy and Development ministries, a new proposal has been unofficially circulated, whereby gasoline station owners and oil-trading companies would get the diesel oil and heating oil from refiners at the same price – that is, they would pay the same tax for both products – and would charge customers buying heating oil with the lower tax in effect. They would then get a rebate from the state upon producing the sale receipt. Until late yesterday, representatives of gas station owners and oil products traders were saying they had not been officially notified by the authorities but expressed their disapproval of the plan. According to sources, however, the Association of Petroleum Products Trading Companies has already expressed its disapproval in writing and has asked for a meeting with Nikos Stefanou, general secretary at the Ministry of Development. The traders’ association claims the system of tax rebates to the traders and gas stations will not stop illegal trade but will create a situation similar to the illegal trade in tax-free fuel for ships. Traders said a third party, like PPC, might manage the tax rebate system, but added they do not believe the government will come up with a satisfactory tax rebate mechanism in any case, not least because this system has never been tried in other countries. Gas station owners added that they foresaw delays in rebates that would leave them essentially subsidizing end-users. Development Minister Dimitris Sioufas announced yesterday that the electricity grid had withstood the persistently high temperatures with no hitches, partly because consumers heeded warnings to cut down on consumption during peak times. Sioufas added that electricity rates will rise at the expected rate of inflation, that is about 3 percent. Sioufas, who met with Karamanlis yesterday, told reporters afterward that the state will retain its 51 percent majority stake in PPC, scotching rumors of a share offer.

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