Katerina Swanson
Fuel tax, also known as petrol, gasoline, or gas tax, is an excise tax imposed on the sale of fuel. In most countries, fuel tax is imposed on fuels intended for transportation. The revenue generated from fuel taxes is often dedicated to transportation projects, such as fixing wear and tear on roads, bridges, and tunnels, or promoting ecological sustainability. Fuel tax rates vary across different countries and states. For example, in the United States, the federal excise tax on gasoline is 18.4 cents per gallon, while diesel fuel is taxed at 24.4 cents per gallon. In India, central and state government taxes make up nearly half of the petrol pump price, with a significant portion going towards excise and customs tax. The amount of fuel tax collected by governments can be impacted by factors such as inflation, the adoption of electric vehicles, and changes in fuel consumption.
| Characteristics | Values |
|---|---|
| Purpose | To reduce pollution and the possibility of global warming, and conserve energy |
| Fuel tax receipts | Dedicated to transportation projects or general revenue |
| Fuel tax rates | Vary by state and type of fuel |
| US federal excise tax on gasoline | 18.4 cents per gallon |
| US federal excise tax on diesel fuel | 24.4 cents per gallon |
| US state and local taxes and fees on gasoline | 34.24 cents on average |
| US state and local taxes and fees on diesel | 35.89 cents on average |
| US total volume-weighted average fuel tax on gasoline | 52.64 cents per gallon |
| US total volume-weighted average fuel tax on diesel | 60.29 cents per gallon |
| US state and local motor fuel tax revenue in 2021 | $53 billion |
| US state and local toll highway charges revenue in 2020 | $19.1 billion |
| Australian fuel excise revenue allocation in 2022 | 53.7% towards road and transport projects |
| Indian central government tax on petrol | 39¢ per litre |
| Indian state government tax on petrol | 23¢ per litre |
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What You'll Learn
Federal fuel tax rates
Federal fuel taxes are excise taxes imposed on the sale of fuels intended for transportation. These taxes are commonly referred to as ""road use" taxes, and they vary across different countries and states. In the United States, the federal excise tax on gasoline is 18.3 to 18.4 cents per gallon, while diesel fuel is taxed at 24.3 to 24.4 cents per gallon. These rates were last raised on October 1, 1993, and are not indexed to inflation, leading to a decline in their purchasing power over time. Federal fuel taxes generated $36.4 billion in Fiscal Year 2016, with $26.1 billion from gasoline taxes and $10.3 billion from diesel and special motor fuel taxes.
In India, central and state government taxes make up nearly half of the petrol pump price. The central government taxes amount to about 10-20% of the final cost, while state taxes vary but typically contribute around 17-20%. As a result, approximately 50-60% of the pump price goes towards various taxes. For example, in Delhi, as of February 18, 2021, the price of petrol was ₹89.54 (US$1.10) per litre, out of which ₹32.98 (39¢ US) went to the Central Government in excise and customs tax, and ₹19.32 (23¢ US) was collected by the state government in sales and entry tax.
In Australia, the fuel excise is collected by the federal government and contributes to general revenue. A portion of this revenue is invested in road and transport projects, healthcare, and education. However, with the increasing adoption of electric vehicles (EVs), the Australian government has considered alternative funding methods, such as a road tax for EV owners.
Fuel taxes are often viewed as a way to promote ecological sustainability and reduce pollution. By increasing fuel taxes, governments can make petrol more expensive relative to alternative fuels, encouraging a shift towards more environmentally friendly options. Additionally, fuel taxes can be used to fund infrastructure projects and other public services, making them a significant source of revenue for governments.
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State fuel tax rates
Fuel tax, also known as petrol, gasoline, or gas tax, is an excise tax imposed on the sale of fuel. Fuel tax rates vary across different countries and states. In the United States, the federal excise tax on gasoline is 18.4 cents per gallon, and 24.4 cents per gallon for diesel fuel. These rates were last raised on October 1, 1993, and are not indexed to inflation, which increased by 111% from October 1993 to December 2023. As of April 2019, state and local taxes and fees add an average of 34.24 cents to gasoline and 35.89 cents to diesel, resulting in a total US volume-weighted average fuel tax of 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel.
The first US state to tax fuel was Oregon, which introduced a 1 cent per gallon tax on February 25, 1919. Over the following decade, all US states implemented a gasoline tax. By 1939, many states levied an average fuel tax of 3.8 cents per gallon. Since then, state fuel taxes have undergone numerous revisions.
In India, fuel pricing varies by state, and central taxes make up a significant portion of the pump price. Central government taxes typically account for 10-20% of the final cost, while state taxes contribute around 17-20%. As a result, nearly 50-60% of the pump price goes towards various taxes. For example, in Delhi, as of February 18, 2021, the price of petrol was ₹89.54 (US$1.10) per litre, of which ₹32.98 (39¢ US) went to the Central Government in excise and customs tax, and ₹19.32 (23¢ US) was collected by the state government in sales and entry tax.
In Australia, the federal government collects fuel excise, which contributes to general revenue and infrastructure funding. As EV adoption increases, the revenue from fuel excise may decrease, leading to potential changes in infrastructure funding methods. The state of Victoria briefly introduced a road tax for EV owners, but it was ruled unconstitutional by the Australian High Court in 2023.
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Fuel tax and electric vehicles
Fuel tax, also known as a petrol, gasoline, or gas tax, is an excise tax imposed on the sale of fuel for transportation. Fuel tax rates vary across countries and states. For example, in the United States, federal excise taxes are levied on motor fuels, with 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel as of July 1, 2024. Additionally, state taxes, including excise, environmental, and special taxes, further contribute to the overall fuel tax. In India, central and state government taxes make up about 50-60% of the pump price of fuel.
With the increasing adoption of electric vehicles (EVs), the amount of fuel excise collected by governments may decrease significantly. This shift has already prompted discussions and proposals for new taxation methods to compensate for the potential loss of revenue from fuel duties. For instance, some Australian states had proposed a road tax for EV owners, but it faced opposition and was deemed unconstitutional. Similarly, in the UK, the transition to electric vehicles is expected to result in a loss of £28 billion in fuel duty revenue, leading to suggestions for a system of road pricing or a flat-rate tax per mile driven.
To address the potential loss of revenue, several solutions have been proposed. One suggestion is to implement a tax on electricity used to charge EVs, leveraging smart charging technology to meter and levy the tax. However, this approach presents challenges due to the distributed nature of charging locations and the need to plug loopholes. Another proposal is to introduce a road user charge or a mileage-based tax, which could be facilitated by requiring vehicles to have a GPS black box to track usage and location. While these ideas are being considered, no immediate plans to introduce new taxes on EVs have been announced.
While the transition to electric vehicles may reduce fuel tax revenue, it is important to note that fuel taxes have been advocated as a way to reduce pollution, address global warming, and promote ecological sustainability. Higher taxes on fossil fuels can make them more expensive compared to alternative energy sources, encouraging a shift towards cleaner energy options. Additionally, fuel taxes contribute significantly to funding transport infrastructure and other public services, making it crucial for governments to carefully consider alternative taxation methods to ensure a stable revenue stream for these essential projects.
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Fuel tax revenue usage
Fuel tax revenue is used in different ways depending on the country and the type of fuel being taxed. In some cases, fuel tax receipts are dedicated to transportation projects and can be considered a user fee. For example, in China, fuel tax has been a contentious issue as the State Council has tried to institute a fuel tax to finance the National Trunk Highway System. Similarly, in Australia, the main fuel tax is an excise tax, with a Goods and Services Tax (GST) added on top. While fuel excise tax revenue contributes to general revenue, a significant portion is put towards road and transport projects.
In other cases, fuel tax revenue is used as a source of general revenue. For instance, in the United States, federal excise taxes are imposed on the sale of motor fuels, with taxes applied to gasoline, diesel fuel, and lubricating oil. These taxes are not specifically designated for transportation projects but are instead part of the government's overall revenue.
Additionally, fuel taxes can be used as ecotaxes to promote ecological sustainability and reduce pollution. Proponents of higher fuel taxes argue that they can help combat the social and environmental costs of gasoline consumption, making petrol more expensive compared to alternative fuels like natural gas, biodiesel, or electric batteries. This encourages a shift towards more sustainable energy sources and can be a form of implicit carbon pricing.
The usage of fuel tax revenue can also vary within a country, as seen in India, where fuel pricing and taxation vary by state. The central government's taxes make up a significant portion of the pump price, but state governments also collect taxes, resulting in a total tax contribution of around 50-60% of the pump cost.
As electric vehicle (EV) adoption increases, the amount of fuel excise collected may decrease, prompting governments to reconsider infrastructure funding methods. For example, the Australian state of Victoria briefly introduced a road tax for EV owners, but it was met with opposition and ultimately ruled unconstitutional.
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International fuel tax rates
Fuel tax, also known as petrol, gasoline, or gas tax, is imposed on the sale of fuel, particularly transportation fuels. The rate of taxation varies depending on the fuel type and location. In most countries, fuel tax is a source of general revenue, but it can also be used as an ecotax to promote ecological sustainability. Fuel tax rates differ internationally, with some countries imposing higher taxes to combat the social and environmental costs of gasoline consumption.
In the United Kingdom, the duty rate for road fuels such as unleaded petrol, diesel, biodiesel, and bioethanol is £0.5295 per litre, with an additional 20% Value Added Tax (VAT) on the price of the fuel and duty. Diesel used by farmers and construction vehicles is taxed at a reduced rate of £0.1133 per litre. On the other hand, jet fuel for international aviation is not subject to duty or VAT in the UK.
Canada has a similar system, with fuel taxes varying between locales. On average, about one-third of the total pump price of gasoline in Canada is tax. Both the federal and provincial governments, as well as some municipalities, levy excise taxes on gasoline and diesel. Canada has also introduced a fuel charge under the Greenhouse Gas Pollution Pricing Act, which took effect in 2019 in certain provinces.
In India, fuel pricing varies by state, but central taxes make up a significant portion of the pump price. Central government taxes account for about 10-20% of the final cost, while state taxes add another 17-20%. As a result, nearly 50-60% of the pump price of petrol in India goes towards various taxes. For example, in Delhi, out of the price of ₹89.54 (US$1.10) per litre of petrol, ₹52.30 (62¢ US) is collected in taxes, amounting to about 58% of the total price.
Hong Kong and China also have fuel taxes, with China witnessing a significant increase in gasoline taxes between 2003 and 2015. However, the specific tax rates for these regions were not readily available. Additionally, the International Fuel Tax Agreement (IFTA) exists between the contiguous U.S. states (except Alaska and Hawaii) and most Canadian provinces/territories. This agreement simplifies fuel taxation for interstate carriers by establishing a single fuel use license and administering base jurisdiction for each licensee.
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Frequently asked questions
In 2021, state and local governments collected a total of $53 billion in revenue from motor fuel taxes. As of July 1, 2023, the average state gas tax was 32.26 cents per gallon, which, when combined with the federal tax of 18.4 cents, amounts to a total gas tax of 50 cents per gallon.
Motor fuel taxes are levied on gasoline, diesel, and gasohol. Most states levy per-unit taxes based on the number of gallons purchased. However, some states tie their tax rates to variables such as the price of gasoline, inflation, population growth, or fuel efficiency.
Fuel tax receipts are often dedicated to transportation projects, such as fixing wear and tear on roads, bridges, and tunnels. In some cases, the tax revenue may also be used for other purposes, such as law enforcement, environmental protection, or education.
