Fuel crisis: Italy urged to cut tax as petrol prices reach record high

With fuel prices in Italy surging to new highs of over €2 euros a litre, business and consumer groups said the government must slash VAT to keep the country moving.

Fuel crisis: Italy urged to cut tax as petrol prices reach record high
Filling up your tank in Italy is becomig prohibitively expensive as the country sees the highest fuel prices on record in early March 2022. Photo by MIGUEL MEDINA / AFP

The average price at the pump in Italy is now at an average of €2.2 per litre for self-service petrol/gasoline and €2.3 for diesel, according to Italian consumer watchdog Codacons.

This means the price of petrol has risen by 39 percent in a year, and diesel prices have risen by 51 percent, the association said.

Italy’s fuel prices are the highest in Europe after the Netherlands, according to analysis by consumer finance website

READ ALSO: How to save money on your fuel in Italy

Although fuel prices have been on an upward trend in Italy since May 2021, petrol and gas prices have skyrocketed since Russia’s invasion of Ukraine: Russia is the world’s third-largest oil producer and second-largest exporter..

But this doesn’t fully account for the price rises. Other factors affecting the price you’ll pay at the pump in Italy include the 22 percent VAT rate, plus excise duty (a tax on the production and consumption of goods).

Codacons said taxation has now reached 55.3 percent on every litre of petrol and 51.8 percent on diesel.

Representatives of Italy’s business and consumer groups have urged the Italian government to provide financial help to prevent further price rises, as some sectors including hauliers say they can’t afford to operate.

Industry association Confindustria on Monday urged the government to do more to offset the price rises.

“The costs of petrol and diesel at the distributor have reached an all-time high in recent days,” President of Confindustria in the southern Italian city of Brindisi, Gabriele Menotti Lippolis said in a statement to the press.

He said fuel distributors were benefiting from rising prices, “but also the State, which is taking higher tax revenues thanks to the VAT paid on fuel prices.”

“In the last week alone, the extra revenue gained [from VAT] is up by approximately 45 million euros compared to in the second week of February.”

He urged the government to use this money “to support families and businesses” while freezing VAT on fuel “for a few months to immediately reduce prices”.

Though the government hasn’t indicated how it plans to address the increases, Italy’s Minister for the Ecological Transition meanwhile blamed the price surge on speculation.

The fuel price rises “are a colossal swindle against Italian companies and citizens,” Minister Roberto Cingolani told Sky TG 24 news on Friday.

“There is no technical reason for these increases,” he said, describing it as “a speculative spiral from which a few profit”.

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How long will it take Italy to wean itself off Russian gas?

Italy's government has repeatedly said it plans to end its dependence on Russia for gas supplies following the invasion of Ukraine. But as the timeline keeps changing, when and how could this happen?

How long will it take Italy to wean itself off Russian gas?

Italy is heavily dependent on Russian gas, but has been seeking new sources since Moscow’s invasion of Ukraine as part of an effort to end this reliance in the coming years.

But it remains unclear whether Italy can really end its dependence on Russia for its gas supply – or when this might be feasible.

READ ALSO: What does Italy’s Algerian gas deal mean for energy supplies?

The government has been seeking new sources since Moscow’s invasion of Ukraine, including with a recent deal to boost supplies from Algeria.

Prime Minister Mario Draghi said last week the country could be independent of Russian gas by the second half of 2024 – the latest in a series of changing estimates.

“Government estimates indicate that we can make ourselves independent from Russian gas in the second half of 2024,” Draghi told the Senate, while adding that the “first effects” of this plan would be felt by the end of this year.

He said his government was also seeking to boost its production of renewable energy, including by “destroying bureaucratic barriers” to investment, saying it was the “only way” to free Italy from having to import fossil fuels.

Explained: Why and how Italy will pay for Russian gas in rubles

In April, Italy‘s Ecological Transition Minister Roberto Cingolani estimated the country would no longer need Russian gas within 18 months, following an earlier prediction that it could take until 2025.

Italy is one of Europe’s biggest users and importers of natural gas, importing 90 percent of its gas supply with 45 percent of that coming from Russia – up from 27 percent ten years ago.

Italy now imports 29 billion cubic metres of Russian gas a year, which Cingolani said in March “must be replaced” – but he didn’t specify with what.

Analysts have said there are “a lot of questions” about how helpful Italy’s gas deal with Algeria will be.

Despite its vast natural gas reserves, Algeria is already exporting at close to full capacity.

Draghi repeated his strong support for EU sanctions on Moscow last week, including a proposed ban on imports of Russian oil, although this is currently being blocked by Hungary.

“We must continue to keep up the pressure on Russia through sanctions, because we must bring Moscow to the negotiating table,” he said.

But for now, Italian energy giant Eni says it plans to pay for Russian gas supplies in rubles, meeting a demand from Vladimir Putin.

It was not immediately clear whether the plan would fall foul of European Union sanctions, although Eni said it was “not incompatible”.

The company said its decision to open the accounts was “taken in compliance with the current international sanctions framework” and that Italian authorities had been informed.