Fuel tax

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 relatively inelastic nature of demand for petrol, in the short run the tax will be an effective source of revenue. In the long run, however, theory predicts that people adjust their consumption of petrol; that is, over a period of years, people will consume less as the price increases (by switching to mass transit, consolidating trips, carpooling, or just traveling less). Thus, some environmentalists have advocated a fuel tax as a way to reduce reliance on 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 neighboring 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. A similar situation exists along the Northern Ireland border where historically fuel prices were much lower in Northern Ireland but in recent years the situation has reversed. 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 neighboring 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. Recently, gas stations in Argentina near the Brazilian border list two different prices for gasoline, one for cars with Argentinian license plates and another one for foreign plates. This was done to restrict Brazilian drivers from buying cheaper fuel in Argentina, generating long lines at the gas stations and driving gas prices up. Gas stations on Interstates in New Jersey close to the New York border typically witness large volumes of sales from drivers taking advantage of the double cuts of less expensive fuel blend and lower fuel sales tax resulting in a significant savings over New York.

Role in energy policy

Taxes on transportation fuels have been advocated as a way to reduce pollution and global warming, conserve energy, and for certain countries reduce dependence on imported oil for foreign policy reasons. Placing high taxes on fossil fuels makes alternative (and often less polluting) fuels such as biodiesel or electric batteries more attractive, and put price pressure on manufacturers and consumers to choose more fuel-efficient products and processes.

Critics argue transportation fuel taxes are a regressive tax, because low-income people pay a higher proportion with respect to their income, and transportation (to work, school, etc.) is not always an avoidable expense.

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 used as fuel (Autogas or 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 an 8.354c/litre subsidy to most fuels bought (including Unleaded, Blended unleaded, LPG and Ethanol). This is usually reflected by an 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 locales. On average, about one-third of the total price of gas at the pump is tax. Excise taxes on gasoline and diesel are collected both federal and provincial governments, as well as by some select municipalities (Montreal, Vancouver, and Victoria); with combined excise taxes varying from 16.2 ¢/L in the Yukon to 30.5 ¢/L in Vancouver. As well, the federal government and some provincial governments (Newfoundland and Labrador, Nova Scotia, and Quebec) collect sales tax (GST and PST) on top of the retail price and the excise taxes.

Gasoline Excise Taxes in Canada

Government	Prov/terr excise tax (CAD¢/L)	Local excise + PST + Federal excise (10¢CAD/L) + GST = Total tax (CAD¢/L)	Total tax (USD¢/gal)
Canada (Average)	14.5	31.9	119.5
Newfoundland and Labrador	16.5	39.9	149.5
Prince Edward Island	20.9	36.8	137.9
Nova Scotia	15.5	38.4	143.8
New Brunswick	14.5	37.4	140.1
Quebec	15.2	38.0	142.4
Ontario	14.7	30.1	112.8
Manitoba	11.5	26.9	100.8
Saskatchewan	15.0	30.7	115.0
Alberta	9.0	24.2	90.7
British Columbia	14.5	33.0	123.6
Yukon	6.2	22.4	83.9
Northwest Territories	10.7	26.8	100.4
Montreal, QC	15.2 + 1.5	39.3	147.2
Vancouver, BC	14.5 + 6.0	36.3	136.0
Victoria, BC	14.5 + 2.5	33.0	123.6

The Government of Canada collects about $5 billion per year in excise taxes on gasoline, diesel, and aviation fuel as well as approximately $1.6 billion per year from GST revenues on gasoline and diesel (net of input tax credits).

Collectively, the provincial governments collect approximately C$8 billion per year from excise taxes on gasoline and diesel.

Taxes collected by the federal government do not get reserved for any specific program. However, provincial taxes usually go to fund road repair and construction with a portion also being directly downloaded to municipalities.

Many Canadians cross into the United States to buy fuel due to lower fuel tax south of the line.

Germany

• 47.04 Euro-Cents per litre for ultra-low sulphur Diesel
• 65.45 Euro-Cents per litre for conventional unleaded petrol

plus Value Added Tax (19%) on the fuel itself and the Fuel Tax. That adds up to prices of 1.19 Euro per litre for ultra-low sulphur Diesel and 1.37 Euro per litre (approximately USD$7.615 per gallon) for unleaded petrol (Sep 2007).

Netherlands

The sale of fuels in the Netherlands is levied with an excise tax. A 1995 excise was raised by Dutch gulden 25 cents (€0.11), the Kok Quarter (€0.08 raise per litre gasoline and €0.03 raise per litre diesel), 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. The 2007 fuel tax was € 0,684 per litre or $ 3,5 per gallon. On top of that is 19% VAT over the entire fuel price, making the Dutch taxes one of the highest in the world.

New Zealand

Fuel taxes in New Zealand are considered an excise applied by the New Zealand Customs Service on shipments brought into the country. A breakdown of the fuel taxes are, however, published by the Ministry of Economic Development. Excise as at 1 July 2007 totals 42.524 cents per litre on petrol. In addition the national compulsory Accident Compensation Corporation motor vehicle account receives a contribution of 7.33 cents per litre from petrol taxes. This is scheduled to increase in 2008to 9.34 cents/litre.

The ethanol component of biofuel blended petrol currently attracts no excise duty. This will be reviewed in 2012.

Diesel does not attract the fuel excise but road users with diesel vehicles must pay the Road User Charge instead. This incorporates an ACC component.

The Goods_and_Services_Tax_(New_Zealand) (12.5%) is then applied to the combined total of the value of the commodity and the various taxes. In practice this means that 6 cents of the final pump price to consumers is a GST impost on the excise tax and ACC levy.

On 25th July 2007 the Minister of Transport Annette King announced that from 1 July 2008 all fuel excise collected would be hypothecated to the National Land Transport Programme.

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

Main article: Hydrocarbon oil duty

From 2007-10-01 the main road fuel (petrol and diesel) duty rate in the UK is £0.5035 per litre. The rate for biodiesel and bioethanol is £0.3035.

Jet fuel used for international aviation attracts no duty, and no VAT.

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. At a pump price of 100p/litre (typical for unleaded as at November 2007), this would put the combined tax at 65.24p/litre, or approximately USD$4.84 per gallon. (Thus without tax, the retail price would be 34.76p per litre, making a combined tax rate of 188%.

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 of the U.S. states (48 at the time), along with the District of Columbia, introduced a gasoline tax. By 1939, an average tax of 3.8¢/gal (1¢/L) of fuel was levied by the individual states. The fuel tax in Texas is currently set at 20¢/gal since being raised to that amount in 1991. In May of 2007, the Texas House of representatives unanimously voted to pass a 'gas-tax relief' measure for the 2007 summer driving period. The measure was not passed by the state Senate.

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), making the average combined tax on gasoline 42¢/gal. Unlike most goods in the U.S., the price displayed includes all taxes, rather than being calculated at the point of purchase.

The head of the U.S. Dept. of Transportation stated on 15 August 2007 that about 60% of federal gas taxes are used for highway and bridge construction. The remaining 40% goes to other, unrelated uses. However, revenues from other taxes is also used in federal transportation programs.

For the first quarter of 2008, the average state gasoline tax is 28.6 cents per gallon, plus 18.4 cents per gallon federal tax making the total 47 cents per gallon. For diesel, the average state tax is 29.2 cents per gallon plus an additional 24.4 cents per gallon federal tax making the total 53.6 cents per gallon.

Taxes on Gasoline for Transportation by U.S. State in U.S. cents per gallon (25 July 2007)
State	State gas excise tax	Other state taxes (general sales tax, average county/local sales tax, environmental fees, wholesale taxes)	State tax total	State + federal tax total
California	18.0	26.4 (7.25% + 1.2)	44.4	62.8
Connecticut	25.0	18.9 (7%)	43.9	62.3
New York	8.0	32.9	40.9	59.3
Rhode Island	27.0	4.0	31.0	49.4
Maine	27.6	1.5	29.1	47.5
U.S. Average	28.6	10.2	28.5	46.9
Massachusetts	21.0	2.5	23.5	41.9
Vermont	19.0	1.0	20.0	38.4
New Hampshire	18.0	1.6	19.6	38.0
New Jersey	10.5	4.0	14.5	32.9
Alaska	8.0	0	8.0	26.4

US Aviation Fuel Taxes (Federal Excise Tax)

Aviation gasoline (most often used to fuel small General Aviation aircraft, such as the Cessna 172) is taxed at 19.4 cents per gallon as of 2007.[1] Legislation is currently pending to raise this tax to 24.2 cents per gallon.[2]

Jet fuel (called "kerosene for aviation" by the IRS) is taxed at 21.9 cents per gallon for the 2007 tax year unless it is used for commercial aviation (i.e. airlines such as American Airlines and US Airways, and small commercial jets commonly chartered by entertainers, politicians, and business VIP’s). Such commercial operations qualify them for a special tax break that allows them to pay only 4.4 cents per gallon.[3] A bill has been introduced by Sen. Jay Rockefeller (D-W.Va.) and Sen. Trent Lott (R-Miss.) that would completely eliminate the tax paid by commercial jets, while more than doubling the tax on non commercial jet fuel users to 49 cents per gallon.[4]

These taxes mainly fund airport and Air Traffic Control operations by the FAA, of which commercial aviation is the biggest user. (In 2007-08, Rockefeller received $14,000 from lobbyists supported by the airline industry (who presumably favor a tax reduction) and $5,000 from from lobbyists that oppose increases in fuel taxes. In 2006-07, Lott received $13,000 from lobbyists supported by the airline industry and $5,000 from lobbyists that oppose increases in fuel taxes.[5])

See also

• Carbon tax

External links

• Excise Tax Rates in Australia
• Oil and Gas Prices, Taxes and Consumers (Canada)
  • Includes Price Components of Gasoline, Government Tax Rates and Revenues, and International Price and Tax Comparisons.
• Fuel tax in the United Kingdom
• History of the gas tax in the United States
• International Fuel Prices 2007 with diesel and gasoline prices of 172 countries and information on fuel taxation for state financing