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A fuel tax (also known as a petrol tax, gasoline tax, gas tax or fuel duty) is a sales tax imposed on the sale of fuel. In the United States, the funds are often dedicated or hypothecated to transportation, or even roads, so that the fuel tax is considered by many a user fee. In other countries, the fuel tax is a source of general revenue.
In most countries the fuel tax is not imposed on fuel which is not intended for transportation: fuel used to power agricultural vehicles, and or home heating oil which is identical to diesel. This creates an economic incentive for illegal use of fuel.
Effects
Because of the inelastic nature of demand for petrol, in the short run the tax will be an effective source of revenue. In the long run, however, people adjust their consumption of petrol; that is, over a period of years, people will consume less as the price increases (by buying more fuel-efficient cars, for instance). Thus, some environmentalists have advocated a fuel tax as a way to reduce reliance on environment-damaging fossil fuels.
In some regions of the world, differences in fuel taxes between countries result in a significant level of cross-border purchasing of motor fuel. This is particularly true in Europe, where large differences in fuel taxes, coupled with minimal or no border controls, encourage drivers to cross borders for the sole purpose of filling up their tanks with fuel. For example, petrol in Luxembourg is typically around 20% cheaper than in neighbouring Belgium. Since both countries belong to the Schengen agreement, the border crossings are unmanned and almost unnoticeable, except for the large number of petrol stations on the Luxembourg side of the border. In Western Europe, it is mostly small countries and territories (e.g. Luxembourg, Andorra, Gibraltar) that enjoy lower fuel taxes. This is possible because the reduced tax revenue caused by a lower fuel tax is offset by disproportionate numbers of drivers from neighbouring countries entering the small countries to pay the lower fuel tax. Most countries' customs regulations permit the duty-free import of the contents of a vehicle's built-in fuel tank, but there are exceptions. Singaporean customs officials check the fuel gauges of vehicles leaving Singapore and require that the fuel tank be at least three quarters full, in order to limit the amount of lower taxed fuel that Singaporean residents can buy during short trips to Malaysia.
Tax rates
Australia
The fuel tax system in Australia is very similar to Canada in terms of its double dipping tax rates, but varies in the case of exemptions including tax credits and certain excise free fuel sources. Fuel taxes are handled by both the Federal and State Governments, including both an Excise Tax and a Goods and Services Tax or "GST". The tax collected is generally used to help fund national road infrastructure projects and repair roads, as well as provide extra revenue for other services.
At current time of writing (June, 2006), the Fuel Tax Bill 2006 is currently being debated in the Australian Senate. If passed, changes to the information below could occur.
The Goods and Services Tax of 10% is charged and included in the price of all fuel purchases in Australia.
The excise tax on commonly used fuels in Australia as of June, 2006 are as follows;
- $0.38143 per litre on Unleaded Petrol fuel (Includes standard, blended (E10) and premium grades)
- $0.38143/0.40143 per litre on Diesel fuel (Ultra-low sulphur/Conventional)
- $0.00 (Excise-Free) per litre on Liquified petroleum gas fuel (LPG as it is commonly known in Australia)
- $0.38143 per litre on Ethanol fuel (Can be reduced/removed via Grants)
- $0.38143 per litre on Biodiesel (Can be reduced/removed via Grants)
Note: Petrol used for Aviation is taxed at $0.02854 per litre
The state government of Queensland also provides a 8.354c/litre subsidy to most fuels bought (including Unleaded, Blended unleaded, LPG and Ethanol). This is usually reflected by a 8.354/litre difference at the pump price, as the subsidy is paid directly to retailers.
There are also a number of various grants and incentive schemes involving tax credits and rebates that generally apply to businesses or industries that rely heavily on the use of fuels, such as transport and aviation. There are also rebates that encourage the production and importation of clean fuels.
Canada
The tax on fuel in Canada can vary greatly between provinces. On average, 40 to 50% of the total price of gas at the pump is tax. The federal government receives its share through the excise tax (10 ¢/L) and the Goods and Services Tax (6% of the whole price, taxes included - it is a tax on a tax). Most of the variation comes from the provincial tax. The lowest being the Yukon with 6.2 cents per litre and the highest being Newfoundland and Labrador with 16.5 cents per litre. In addition to this there is sometime provincial sales tax, such as in Quebec (a tax on a tax on a tax), and in larger urban centers there is a transit tax.Taxes collected by the federal government (totaling $10,000,000,000 a year) do not get reserved for any specific program. However, provincial taxes usually go to fund road repair and construction.
Netherlands
The sale of fuels in the Netherlands is levied with a excise tax and a provision for keeping a strategic reserve by the government. Furthermore a general VAT is applied at points of sale (19% for 2006). For 2006, without VAT, gasoline is taxed at €0.6734 per litre, diesel at €0.3702 per litre and LPG at €0.0548 per litre. About 66% of the pump price for gasoline is directly attributable to the Dutch government.A 1995 excise raise by 25 cents, the Kok Quarter, by then Prime-Minister Wim Kok is now specifically set aside by the second Balkenende cabinet for use in road creation and road and public transport maintenance.
People's Republic of China
In the People's Republic of China, the fuel tax has been a very contentious issue. Efforts by the State Council and the Communist Party of China to institute a fuel tax in order to finance the National Trunk Highway System have run into strong opposition from the National People's Congress, largely out of concern for its impact on farmers. This has been one of the uncommon instances in which the legislature has asserted its authority.
United Kingdom
As of 2005 fuel duty in the United Kingdom is:
- 47.1 pence per litre for ultra-low sulphur unleaded petrol/diesel
- 50.9 pence per litre for conventional unleaded petrol
- 53.27 pence per litre for conventional diesel
- 27.1 pence per litre for biodiesel and bioethanol (to encourage conversion)
- Zero VAT and duty, for jet fuel used for international aviation
Note: in the UK, Value Added Tax (VAT), currently at 17.5%, is also charged on the price of the fuel and on the duty.
United States of America
The first U.S. state tax on fuel was introduced in February 1919 in Oregon. It was a 1 cent per U.S. gallon (0.3¢/L) tax. In the following decade, all 48 U.S. states and the District of Columbia introduced a gasoline tax, and by 1939 an average tax of 3.8¢/gal (1¢/L) of fuel was levied by the individual states.While state fuel taxes had been around for more than a decade, the first federal gasoline tax in the United States was created on June 6, 1932 with the enactment of the Revenue Act of 1932 with a tax of 1 cent/gal (0.3¢/L). The U.S. federal gasoline tax as of 2005 was 18.4¢/gal (4.86¢/L), and the gasoline taxes in the various states range from 10 cents to 33 cents, with an average about 22 cents per U.S. gallon (5.8¢/L). Unlike most goods in the U.S., the price displayed includes all taxes, rather than being calculated at the point of purchase.
External links
- Excise Tax Rates in Australia
- Fuel tax in the United Kingdom
- History of the gas tax in the United States
- International Fuel Prices 2005 with diesel and gasoline prices of 172 countries and information on fuel taxation for state financing
Taxation | Petroleum products | Energy economics | Transport economics
"Fuel tax"