Increase in taxes for oil products

The  increase in special consumption taxes (SCT) for oil products on Sep. 22 have only been in motor vehicle fuels, namely gasoline, diesel and auto-LPG. The increase has been the same at TRY0.30 per liter (TRY0.35 including VAT) for each of the three products. The rate of increase in SCTs have been different (from 16% for gasoline to 24% for auto-LPG) due to different existing SCTs for these products.  From what we can see, fuel distribution companies have immediately increased their respective recommended maximum pump prices for these products on the same date the increases became effective (Sep. 22). This is the first time SCTs on motor vehicle fuels have risen since end-2009.

Comment:  We estimate the increases in taxes are negative only to a significantly limited extent for Turkish downstream oil companies (Tupras, Aygaz, Petrol Ofisi, Turcas). We estimate Tupras and the fuel distribution companies have immediately reflected the SCT increases fully in their sales prices. We estimate they will continue doing so and the negative impact will be mostly limited to their volumes in relatively small percentages, assuming the government will not allow the black market to expand significantly due to increased taxes.

The resulting increase in pump prices on increased SCTs are significant (8% to 9%) but unlikely to have a sizeable impact even on (legal) consumption of oil products in Turkey due to low sensitivity of transportation fuels demand to prices. We do not know yet know if this increase in SCTs will be followed by another increase towards the end of the 2012 (the usual increase towards the end of the year is generally in line with the annual inflation but in recent years the government has not been increasing SCTs on oil products each and every year presumably due to already significant increases in pre-tax prices for oil products on quintupling of oil prices since 2003). Yet, we think another overall increase in SCTs for oil products towards  the end of the year is unlikely given the large size of this most recent increase.

Even if there is such a further increase in SCTs towards the end of 2012, we estimate the negative impact of the Sep'12 increase in SCTs on oil products demand will be around 0.5 ppt for the next twelve months . The likely negative impact would be slightly less if the government does not increase SCTs again towards the end of 2012. The size of the negative impact might be somewhat more, however, if the government does not ensure the black markets for these products, especially in diesel, do not grow due to increased taxes. The three products combined account for c.60% of the Turkish oil products consumption which was about 700k bbl/day in 2011.  We were estimating a 2.6% y-y increase  in overall consumption for oil products in 2012 in Turkey and 3.7% y-y in 2013.