Fuel VAT slashed from 24% to 11% in temporary move to curb inflation and shield households from rising energy costs
Iceland has moved to cushion households and businesses from rising fuel costs, announcing a temporary reduction in VAT on petrol and diesel from 24% to 11%.
See what other countries fuel VAT cuts.
The measure, approved on 10 April 2026, forms part of a broader anti-inflation package responding to volatility in global oil markets linked to tensions in the Persian Gulf.
The VAT cut is expected to apply for a four-month period from 1 May to 31 August 2026, targeting immediate price relief at the pump. However, the government is taking the unusual step of backing the rate reduction with enforcement. The Competition Authority has been given powers to monitor fuel retailers and intervene where the VAT saving is not passed through to consumers, addressing a common policy risk with indirect tax cuts.
Alongside this, Iceland is investing in price monitoring and longer-term energy resilience. Funding has been allocated to strengthen oversight of essential goods pricing, while a parallel ISK 500 million programme will expand electric vehicle charging infrastructure.
