Environment and Energy Minister Maria da Graça Carvalho defended Portugal’s approach in Parliament on Wednesday, as motorists continue to face high prices at the pumps.

Asked why Portugal was not following its neighbour, Carvalho said the two countries had made different choices over taxation.

She argued that fuel taxes play an important role in funding services such as the National Health Service (SNS) and education, in the same way as other taxes, including IRS, IRC, and IMI.

The Government’s position does not mean there is currently no tax relief on petrol and diesel.

Portugal is already applying an extraordinary discount through the Tax on Petroleum Products (ISP), which the Government says is worth around 23 cents per litre, including VAT, on both petrol and diesel.

Portugal chooses a different route

Carvalho said the Government would rather reduce direct taxes, such as income tax, while targeting additional support at the people and sectors most affected by higher energy costs.

She pointed to measures for agriculture, fishing and freight transport, as well as support for bottled gas.

The minister was also critical of the financial consequences of Spain’s approach. While stopping short of directly attacking Spanish tax policy, she argued that lower fuel taxation comes at a cost to public finances and can ultimately increase the cost of government borrowing.

Portugal’s current fuel support works differently.

When petrol or diesel prices rise by more than 10 cents compared with the week of 2 to 6 March, the additional VAT collected as a result of that increase is returned to motorists through a temporary reduction in ISP.

The Government says it has been doing this since 26 February and insists it is not making additional money from the recent surge in fuel prices. More than €700 million has already been channelled into measures designed to soften the impact of higher fuel costs.

Carvalho told Parliament that the return of additional VAT through ISP reductions could reach €1.3 billion by the end of the year.

Fuel price cap also rejected

The Government is equally reluctant to impose a cap on prices at filling stations.

Carvalho said fixing fuel prices would only be considered as a last resort, favouring direct support instead.

The latest ISP rates came into force on 7 September. The extraordinary discount currently amounts to €96.49 per 1,000 litres of road diesel and €75.48 per 1,000 litres of unleaded petrol before VAT is taken into account.

Fuel prices in Portugal have been under renewed pressure as instability in the Middle East has pushed up international oil and refined-product prices.

The Government has received criticism over the cost difference between Portugal and Spain, where motorists generally pay less at the pump once taxes are included.

For now, however, the Government is sticking with its existing system: adjusting ISP when prices rise sharply and directing other help towards particular sectors, rather than making a wider cut to fuel taxation.