Gargantuan fuels price increase awaits Hungary

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Friday, June 19, 2009 10:52:00 AM

Fuels prices in Hungary will rise by a never-before-seen rate as of 1 July due to the hike of the 20% VAT rate to 25% and an increase to excise tax on fuel. Before someone would start putting the blame on oil companies we advise to take a look at what the price of gasoline and diesel will comprise after 1 July.

There is a double whammy awaiting drivers on 1 July. In a fight against the negative influences of the global crisis, Hungary's government will raise both excise taxes and the regular VAT rate. Excise tax on gasoline will go up on gasoline and diesel by HUF 5.5 to HUF 109 and HUF 90.5, respectively. The rate of VAT will be hiked to 25% from 20%.

Assuming fuels prices do not change in the following two weeks, the retail price of gasoline and diesel will jump by 7% on 1 July or HUF 19 and HUF 18, respectively. Such an increase is unprecedented in the history of Hungary.

The price increase is fully attributable to the tax increases, and an implication of that might be that oil companies' margins will decrease. We do not believe, however, that this impact will be overly strong and it will probably not last long.

The tax content of gasoline will rise to 56% from 53% and to 53% from 50% at diesel as of 1 July.

You find the composition of the retail price of gasoline and disel in the charts below.