Fuel sales tax is a tax paid by the purchaser of a product, with a set amount for excise tax and a percentage for sales tax. The US and Canada have federal and state/provincial taxes, while the EU has higher taxes due to supply and taxation. The purpose of these taxes is to capture revenue, but they can also drive behavior and fund specific purposes. Regions that rely on gas or oil for heating purposes often also levy a fuel sales tax, which can disproportionately affect low-income households.
A sales tax is a tax paid directly by the purchaser of a product and is usually based on a percentage of the item’s price. An excise tax has a set amount for a certain measure or unit of an item and does not increase or decrease when the price fluctuates. Fuel sales tax paid at the pump is actually an excise tax or a combination of an excise tax and a sales tax levied by federal, state, and local governments.
In the United States, the federal government imposes a special per-gallon tax on gas, diesel, gas oil, and jet fuel. Additionally, states impose taxes based on a fixed amount or a percentage. In many jurisdictions, additional taxes are added by city or county. The federal government charges slightly less for diesel than it does for gas, and substantially less for gasoline. However, individual states vary, and some charge more for diesel, while others tax all fuel types equally or only offer discounts for alternative fuels.
Canada’s federal government levies three taxes on fuel: an excise tax that has a set amount per liter and two sales taxes, the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST). Eliminates special tax on heating fuel. Furthermore, provinces and municipalities are free to add their own excise tax or fuel sales tax. Many countries, including Canada and the US, impose additional fuel taxes on large transportation vehicles.
Gas prices in European Union countries are substantially higher than those in North America for two reasons: supply and taxation. Most EU countries, with the exception of the UK and Switzerland, apply a lower fuel sales tax on diesel than on unleaded petrol. The UK charges two taxes; the federal fuel sales tax or excise tax and the value-added tax (VAT) that is added to the pump price. Substantially lower taxes are levied on alternative fuels such as natural gas, ethanol and biodiesel.
Fuel sales tax is a method used by governments to try to drive behavior such as discouraging personal vehicle use through high taxes or encouraging conversion to more environmentally friendly alternatives with lower tax breaks. The main purpose of these taxes, however, is to capture revenue. In most jurisdictions, the federal fuel sales tax is earmarked for general revenue, with a portion earmarked for road construction and maintenance. States, provinces and local jurisdictions may pass legislation that restricts the use of such funds to specific purposes such as building roads, improving public services, funding public transportation projects and energy research and development.
Regions that rely on gas or oil for heating purposes often also levy a fuel sales tax on this product, although some areas have sought to reduce or eliminate this tax due to the disproportionate burden it can place on low-income households. Sometimes a traveler can use alternatives like barriers and mass transit to avoid rising fuel costs, but a person with limited income may have no option but to use oil or gas for heating purposes. People with lower incomes generally cannot install solar panels or wind turbines to supplement the heating systems in their homes and ultimately reduce heating costs.
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