Serbia Extends Lower Fuel Excise for Another Week

The reduced excise on petroleum products stays in force for another week, the Serbian government announced, only days after diesel and petrol rose in price at the pump on July 24. The measure covers diesel and motor petrol, and the extension means the state intervention on one component of the retail fuel price now lasts longer than initially planned.

Excise is one of the parts of the fuel price the state controls directly, alongside value added tax and the oil companies’ own costs. When world oil prices and the dinar exchange rate push up the base price of fuel, a lower excise is the lever the government can use to absorb part of an increase before it reaches drivers. That lever has now been left at a lower level for seven more days.

Why is the government stepping in on excise again?

The trigger is the increase that took effect on July 24, when diesel and petrol prices at domestic stations were revised upward. Without intervention, the full excise amount would feed into the retail price in the next pricing period and add further weight on consumers. By extending the lower excise, the government delays that effect and keeps pump prices below what the standard rate would produce.

The benefit is clearest for two groups. The first is households, for whom fuel is a fixed monthly cost and for whom every correction at the pump directly cuts disposable income. The second is business, above all transport, agriculture and any activity where fuel enters the cost structure. For them a lower fuel price slows the rise in the prices of goods and services, so the measure also carries an indirect anti-inflation effect.

Who carries the cost of the lower excise?

Every reduced excise has its other side: less money flowing into the budget. Excise on petroleum products is one of the state’s more productive tax revenues, so extending the lower rate shifts part of the burden from drivers to public finances. As long as the extension is short and tied to a single wave of price increases, that loss stays limited. If the temporary measure is repeated week after week, the arithmetic becomes more sensitive.

There is also the question of durability. The fuel price in Serbia is set through a regulated methodology and changes at regular intervals, and the strongest pressure on it comes from outside, through the world price of oil and movements in the exchange rate. Excise is the domestic instrument that softens that external shock, but does not cancel it. If the base price of fuel keeps rising, the state will have to choose between giving up more revenue and letting the price move closer to the market level.

For now the first option has been chosen: one more week of lower excise and lower prices at the pump. What follows is the next pricing period and the decision that will come with it. How long, in your view, can the budget keep fuel prices under control before the pressure becomes too great?