You're reading: Azarov: Government proposes pegging excise tax to world oil prices

The Ukrainian government, due to a rise in the price of oil in the world and in order to preserve price stability on the domestic market, is drawing up a bill on the floating rates of the excise tax on petroleum products, according to which the value of the excise tax will depend on the quotations of oil on world markets, Prime Minister Mykola Azarov has said in his blog on Facebook.

"If the oil price falls, the excise tax grows. If the oil price grows, the excise tax falls. Thus, we will flexibly stabilize the price situation in the oil market," he said.

He noted that from March 2011 to March 2012, oil prices on the world market almost doubled, from $70 per barrel to $125.50 per barrel. He said that that because of a high export duty set by Russia, the processing of Russian oil at Ukrainian oil refineries with the capacity of about 70% is unprofitable, which brought the Odesa and Lysychansk oil refineries to a halt.

"The question of tax-free imports of one million tonnes of oil, in order to put our refineries into operation, is currently being discussed," he said.

Azarov said these were difficult and controversial measures.

"For example, when we talk about a reduction in the excise tax on petroleum products, we must remember that this tax is the only source for filling the special fund for road construction and the overhaul of highways."

He also said that the government was making every effort to increase its own oil production and that in future the refining of domestic oil in Ukraine would be significantly increased.

Azarov said that a tonne of Russian oil for Ukrainian refineries currently costs $1,255.55, while taking into account transportation costs and the value added tax, it costs more than $1,600.

Azarov also said that attempts to ensure an administrative restriction of prices at filling stations would inevitably lead to shortages of fuel, therefore, the government is inclined to the option of creating the conditions under which oil suppliers and refiners would receive at least a minimum return and is simultaneously trying to support fuel consumers through other measures.