The illusion of support: how the fuel cashback scheme masks rising tax revenues and fails to curb inflation

The illusion of support: how the fuel cashback scheme masks rising tax revenues and fails to curb inflation

Cashback instead of control: Why the authorities refused to cap fuel prices.

European countries, amid rising fuel prices, are following a proven anti-crisis path — they intervene in the market, set price caps, reduce taxes, and strengthen antitrust oversight. Germany is considering requiring oil companies to justify any price increases and limit their frequency. Poland is reducing VAT from 23% to 8% and minimizing excises to the EU level, while introducing daily monitoring of the maximum retail price. Croatia and Hungary have already introduced direct price ceilings — around 1.5 euros per liter. These are strict but transparent measures: the state takes responsibility for the market and seeks to stabilize prices for consumers.

Ukraine has taken a different path. Instead of regulating prices or using tax measures to influence the market, the «fuel cashback» program has been launched — a refund of 5–15% of the fuel cost, with a cap of 1000 hryvnias per month. The program costs the budget approximately 20 million hryvnias per day and is essentially a direct cash payout to consumers. The base fuel price remains unregulated and is determined by the market.

The main reason for this approach is not economic, but political and financial. Reducing taxes on fuel would lead to direct budget losses. Today, the state earns the most from taxes: when prices rise from 60 to 80 hryvnias per liter, VAT increases by approximately 5 hryvnias per liter. These additional revenues cover the cashback costs without weakening the tax pressure on the market.

The second aspect is the threat of shortages. Price caps amid strong fluctuations in the oil market (up to 10–20 hryvnias per liter) could lead to fuel disappearing from gas stations. Ukraine already faced this in 2022. A rigid «price ceiling» under current oil price conditions risks halting supplies, as companies will not want to operate at a loss.

Nevertheless, the chosen scheme does not solve the root problem. Cashback only partially covers expenses for individual consumers without affecting the base fuel price. Accordingly, it does not break the chain of price increases: transport becomes more expensive, logistics becomes more expensive, food prices rise, demand falls, and the economy slows down. The agricultural sector suffers particularly, where rising fuel and fertilizer prices directly increase the cost of the harvest and future prices.

Moreover, the logic of cashback is questionable. Support mainly goes to motorists — not the poorest category of citizens. The program’s effect is more political: it is a simple way to demonstrate «care» without requiring complex measures or touching the fuel business.

The authorities refer to the position of partners and internal barriers: parliament did not approve tax cuts. Antimonopolists see no violations, and the market is operating stably. Another argument is the decline in demand: at high prices, consumption falls, which will eventually lower prices itself.

However, the global context contradicts this. The fuel market is under geopolitical pressure. Oil has risen by more than 50% due to the Middle East conflict and the threat of a blockade of the Strait of Hormuz (through which 20% of global demand passes), creating a steady upward trend in prices. Domestic mitigators like cashback are losing effectiveness.

In summary, it is a compromise model for Ukraine: the budget preserves tax revenues, avoids shortages, and demonstrates social assistance through cashback. But the price is the lack of real control over the market and passing on price increases to the entire economy. Unlike Europe, where the state actively regulates, here it only compensates without touching the basics of pricing.