The sharp excise rise on motor fuels planned to cover costly election promises will push Estonia back into the times a few years back when local fuel market was ruled by masters of dark tax schemes.
The ordinary consumer may indeed save a euro of two at the filling station, but due to low quality of such fuel hundreds of euros may afterwards be spent on repairs of the engine. The reason: repertoire of the cheats features the major component of playing with composition of the fuel.
As an option, the coalition talks have raised the sceptre of lifting liquid fuels excise by a tenth next year, and to continue by 5 percent yearly till 2019.
«The desire to engage in tax fraud will definitely increase as the bigger profits available will tempt many and lure cheats to use schemes more expensive and elaborate,» Postimees was told by Siret Liivamägi, CEO of a major local car fuels wholesale supplier Orlen Eesti.
To this, the leading fuels importer Statoil agrees. «When taxes rise, the ranks of those desiring to avoid them always grow,» said Statoil Estonia chief Kai Realo. «If, due to excise, fuel price changes four-five cents, for a fuel seller this may be his entire margin.»
Damage twice smaller
By forceful actions last year, Tax Board succeeded in cutting VAT damage in fuels sector by more than twice. As in 2013 the damage caused to the state by illegal fuels amounted to €64m, last year the sum was €31m.
On every sale, a seller of fuel earns over five percent, while the sate earns over 50 percent of the sum paid for the purchase – if successful, tax fraud makes more money than honest business.
Only this March, tax officials arrested a vehicle in Pärnu-Ikla Highway in the semi-trailer of which 26,000 litres of liquid was discovered smelling like diesel. In the assessment of the officials, by adding various substances to diesel fuel it was attempted to bring motor fuel into the country and to sell it outside the excise warehouse. «With illegal fuel, no-one will bother to extract the heavy oils added and to check the quality of the fuel,» said Kunnar Keres of Tax Board’s Southern mobile control.
Last year, for like causes, Tax Board confiscated close to 200,000 litres of fuel.
The success by Tax Board last year was remarkable, as the line between tax fraud and foiled business deals may be exceeding thin – and subject to subjective interpretations in court.
Lion’s share of tax fraud is committed with the very diesel fuel, the sakes of which make two thirds of car fuel sales. Also, fertile ground is provided by large-scale purchases by transport companies. Petrol is usually used by private consumers and therefore the one-off transactions are small.
For instance, the Kristjan Olei owned Novus Oil went to the last instance in courts with Tax Board, debating for tax exemption. In 2013, Mr Olei applied for Tax Board for excise exemption regarding 8 million litres of diesel fuel, desiring to produce emulsified oils and emulsified fuel.
Novus Oil claimed they were intending, by special nanotechnology, to disperse water so as to mix with diesel duel to the ratio of 20 : 80 percent. The product thus achieved would be fit for use in ship engines, for instance, as due to the toughened environmental requirements shipping companies will need, as from this year, to use diesel fuel instead of mazut.
However, while excise for the usual diesel fuel is €392.92 per tonne, the business plan of Mr Olei would have yielded a fuel taxed significantly less: €15.01 for heating oil and no excise as ship fuel. The difference between the two excise rates was more than 26-fold. Instead of the usual 30 days, the Tax Board spent six months to ponder the application. And proceeded to tell Mr Olei no.
«For fear of tax fraud and schemes, Tax and Customs Board (MTA) has also hindered the production of an innovative and environment-friendly product. By now, little by little the ice has started to melt – law amendments are planned on the basis of which fuels would be taxed according to energy content and environmental impact. Also, through intense control, MTA has found that emulsified fuels by Novus Oil are indeed used for heating and for ships, and all excises prescribed by law have been paid. In the aforementioned court case, the debate was about warehouse proceedings, not taxation of emulsified fuels,» explained Mr Olei.
Tax Board, however, claimed that though the court dispute centred not on tax fraud, still they managed to avoid the state missing large amounts in tax revenue. «We seriously doubted the ability of the entrepreneur to produce large quantities of heavy fuel oil from diesel oil, and in the end the court conceded to our considerations,» said Tax Board control department head Laura Soome.
Cheat or victim?
Five years ago, a company linked to Mark Orav, the enthusiastic engine behind Viljandi and Tabasalu tennis halls, purchased large quantities of cheap fuel from Premium Masters, ASW Baltic and ASW Invest. At the same time, the local Viljandi County paper Sakala wrote about a recently opened filling station Texor offers fuel 1.5 kroons i.e. close to 10 euro cents cheaper than competitors.
Later, it turned out the companies that supplied the fuel to Texor had purchased the goods from Latvia and, after the deal done in Estonia, never bothered to pay VAT.
In 2013, a court agreed with Tax and Customs Board vision that behind the non-payment of taxes was a scheme created by Texor and that the three small companies, now vanished, were straw men for the Viljandi businessman. Based on shadow transactions confirmed in court, the Tax Board slapped the businessman with additional €192,000 plus in VAT and over €104,000 in income tax.
The entrepreneur, however, claimed he was victimised by cheats and the Tax Board turned him into a scapegoat.
«Mediation companies earlier unknown to us offered fuel from Latvian oil base at very good prices. We tried to buy cheap fuel from Latvia ourselves, but to us they sold it not at that price,» said Arli Okas, CEO of a company linked to Texor. «Only after tackled by the Tax Board we realised the cheap price offered came because they did not intend to pay taxes.»
Tax Board, however, has no doubt it apprehended the very culprit. «Non-payment of VAT with fuel fraud is as widely used as claiming tax returns for fictitious deals with other goods and services, as this is a one-off deal with a vast quantity,» explained Laura Soome.