Fuel prices set to rise as VAT cut faces expiry

Fuel prices are likely to rise as the temporary reduction in Iceland’s value-added tax on fuel is set to expire, mbl.is reports. The Social Democratic Alliance and the People’s Party do not appear willing to support convening Parliament in August to extend the measure.

The authorisation granted by Alþingi last spring to reduce VAT on fuel to 11 per cent expires at the end of this month. VAT would then return to 24 per cent, resulting in higher fuel prices.

Independence Party MP Jón Gunnarsson said over the weekend that the opposition was prepared to attend a parliamentary session in the coming days to approve an extension.

Finance Minister Daði Már Kristófersson has said that any continuation of the VAT reduction would have to wait at least until mid-September. Parliament is scheduled to reconvene on 8 September.

“The government temporarily lowered the price at the pump this summer. According to the work schedule, Parliament convenes on 8 September, when the government will present its proposals for both revenues and expenditure. That work is currently under way, with the aim of producing a balanced budget for 2027,” Guðmundur Ari Sigurjónsson, chairman of the Social Democratic Alliance parliamentary group, told Morgunblaðið.

He said that parallel discussions were taking place between the labour movement, employers and the authorities, with the aim of ensuring that the assumptions underlying collective wage agreements remained valid. No conclusions had yet been reached, he said.

Asked whether he supported convening Parliament in August to approve a lower VAT rate, Guðmundur Ari referred the matter to the government’s consultation group and the social partners.

“It is not timely to convene Parliament for one specific measure. These discussions are under way, and I expect their outcome to be taken into account. It is therefore not timely to convene Parliament and take special measures,” he said.