The Ministry of Finance explains that VAT is a harmonized tax in the EU, and its application is regulated by the VAT directive, which does not provide for the possibility of reducing the tax rate on fuel. This means that Latvia's ability to curb fuel price increases in this way depends not only on a political decision by the government or the Saeima, as the application of VAT throughout the EU is determined by common rules. The VAT directive stipulates that member countries must generally apply the standard VAT rate to all goods and services. Reduced VAT rates can only be applied to certain, clearly specified categories of goods and services. This list includes, for example, food, medicines, passenger transport, books, and, in certain cases, specific energy products. Fuel for vehicles is not included in this list, which means that member countries have no legal grounds to apply a reduced VAT rate to gasoline, diesel fuel, or other types of transport fuel, the Ministry of Finance explains. By the way, Poland and Spain, in response to the sharp rise in prices, have temporarily introduced a reduced VAT rate on fuel; however, the European Commission has already publicly indicated that such decisions do not comply with the current VAT directive.
