Fuel taxes come in two forms: sales tax and excise duty. In the US, the federal government imposes an excise tax on fuel, while states levy taxes based on a flat rate or percentage. Canada has an excise duty and two sales taxes, while the UK charges a fuel sales tax and a value-added tax. The primary purpose of these taxes is to capture revenue, but they can also encourage environmentally friendly alternatives. Regions that depend on gas or oil for heating purposes typically also levy a fuel sales tax on that product.
A sales tax is a tax paid directly by the buyer of a product and is usually based on a percentage of the item’s price. An excise duty has a fixed amount for a certain measure or unit of an item and does not increase or decrease as the price fluctuates. The fuel sales tax paid at the pump is actually an excise tax or a combination of an excise tax and a sales tax charged by the federal, state and local governments.
In the United States, the federal government imposes an excise tax by the gallon on gas, diesel, gas oil, and jet fuel. Additionally, states levy taxes based on a flat rate or percentage. In many jurisdictions, the city or county adds additional taxes. The federal government charges slightly less for diesel fuel than gas, and substantially less for diesel fuel. Individual states vary, however, with some charging more for diesel, while others tax all types of fuel fairly or offer discounts only for alternative fuels.
The Canadian federal government levies three taxes on fuel: an excise duty which has a fixed amount per liter and two sales taxes, the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST). Eliminate the excise duty on heating fuel. In addition, provinces and municipalities are given the freedom to add their own excise or fuel sales tax. Many countries, including Canada and the United States, impose additional fuel taxes on large transportation vehicles.
Gas prices in European Union countries are substantially higher than prices in North America for two reasons: supply and taxation. Most EU countries, except the UK and Switzerland, charge a lower fuel sales tax on diesel than unleaded petrol. The UK charges two fees; the federal fuel sales tax, or excise duty, and the value added tax (VAT) which is added to the price of the pump. Substantially lower taxes are assessed for alternative fuels such as natural gas, ethanol and biodiesel fuel.
The fuel sales tax is a method used by governments to try to guide behaviour, such as discouraging the use of personal vehicles through high taxes or encouraging conversion to more environmentally friendly alternatives with lower tax incentives. The primary purpose of these taxes, however, is to capture revenue. In most jurisdictions, the federal fuel sales tax is part of general revenue, with a portion allocated to road construction and maintenance. States, provinces, and local jurisdictions can pass laws limiting the use of these funds to specific purposes, such as building roads, upgrading utilities, financing mass transit projects, and energy research and development. .
Regions that depend on gas or oil for heating purposes typically also levy a fuel sales tax on that product, although some areas have sought to reduce or eliminate that tax due to the disproportionate burden it can place on low-income families. Sometimes a commuter may use alternatives such as carpools and mass transit to avoid rising fuel costs, but a person with limited income may have no choice but to use oil or gas for heating purposes. People on lower incomes generally cannot afford to install solar panels or wind turbines to supplement the heating systems in their homes and ultimately reduce heating costs.
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