Sylvie Willis
Fuel excise taxes vary across the world. In the US, federal excise taxes are levied at 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel, while in Australia, the main fuel tax is an excise tax with an additional 10% goods and services tax (GST). In 2022, the fuel excise tax in Australia was lowered by 50% to 22.1 cents per litre for all fuels for a period of six months. Historically, fuel excise taxes in Australia have been adjusted to address cost-of-living concerns arising from rising fuel prices, with certain industries and businesses benefiting from exemptions, rebates, and tax credits.
| Characteristics | Values |
|---|---|
| Main fuel tax in Australia | Excise tax |
| GST | 10% |
| Excise tax on unleaded petrol fuel | $0.442 per litre |
| Excise tax on diesel fuel | $0.442 per litre |
| Excise tax on aviation fuel | $0.03556 per litre |
| Excise tax increase from November 10, 2014 | 38.6 cents per litre |
| Fuel excise tax cut from April 1 to October 1, 2022 | 22.1 cents per litre |
| Federal excise tax on gasoline in the US | 18.3 cents per gallon |
| Federal excise tax on diesel fuel in the US | 24.3 cents per gallon |
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What You'll Learn
Fuel excise tax rates in Australia
The main fuel tax in Australia is an excise tax, which is levied by the federal government. The Goods and Services Tax (GST), currently at 10%, is applied on top of the fuel excise tax. In 2001, the Australian government adjusted the excise rates to account for the introduction of the GST and stopped indexing the fuel excise tax for inflation. However, indexation was reintroduced in 2014, with the tax rates being reviewed twice a year, on the 1st of February and the 1st of August.
The fuel excise tax rate in Australia as of the 1st of February 2022 was $0.442 per litre on unleaded petrol fuel, including standard, blended (E10), and premium grades, and $0.442 per litre on diesel fuel. From the 1st of April to the 1st of October 2022, the federal budget lowered the fuel excise tax by 50% to 22.1 cents per litre for all fuels.
Petrol used as fuel in aircraft is taxed at $0.03556 per litre. Additionally, businesses may be entitled to exemptions or rebates for fuel excise tax, including tax credits and access to certain excise-free fuel sources. For example, the Australian Fuel Tax Credits Scheme, which came into effect in 2008, provides subsidies for all off-road business use of fuel. This benefits businesses that do not run large vehicle fleets but consume large amounts of fuel in their business processes, such as mining, manufacturing, construction, and plant operations.
Prior to 1997, several Australian states levied fuel franchise fees. However, the High Court of Australia ruled in Ha v New South Wales that a licence fee based on the value of tobacco was unconstitutional, as it was an excise tax that only the Commonwealth could levy. As a result, the federal government introduced a fuel excise tax and distributed the revenue to the states. Queensland, for example, provided an 8.354c/L subsidy on most fuels sold in the state, which was reflected in an 8.354c/L price difference at the pump.
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Fuel excise tax rates in the US
In addition to federal excise taxes, state and local taxes and fees further increase the overall tax burden on fuel. As of April 2019, state and local taxes added an average of 34.24 cents to gasoline and 35.89 cents to diesel, bringing the total US volume-weighted average fuel tax to 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel. However, these rates vary widely across states, with California having the highest gas tax rate of 68.1 cents per gallon, while Alaska has the lowest rate of 8.95 cents per gallon.
Excise taxes are also levied on aviation fuels, with rates varying depending on the type of fuel and its intended use. Aviation gasoline (Avgas) is taxed at $0.194 per gallon, with a surtax of $0.141 per gallon when used in fractional ownership program aircraft. Kerosene used in aviation (Jet fuel) is generally taxed at $0.244 per gallon, with a reduced rate of $0.219 when removed directly from an on-airport terminal for use in non-commercial aviation. Oklahoma has the lowest tax rate on aviation and jet fuel at $0.0008 per gallon.
Highway-related excise taxes are another significant component of fuel excise taxes in the US, with gasoline and diesel taxes making up over 85% of total highway tax revenue. These taxes are intended to fund highway repair and maintenance, as well as other government infrastructure projects. Excise taxes are also used to finance environmental and health-related spending, with the Highway Trust Fund and the Airport and Airway Trust Fund receiving the majority of trust fund excise tax receipts.
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How fuel tax credits work
In the US, federal taxes include excise taxes of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel. Additionally, there is a Leaking Underground Storage Tank fee of 0.1 cents per gallon for both fuels. State taxes may also include excise taxes, environmental taxes, special taxes, and inspection fees.
In Australia, the main fuel tax is also an excise tax, with a 10% Goods and Services Tax (GST) applied on top. The fuel excise tax rate has varied over the years, with adjustments made due to the introduction of the GST in 2001 and changes to indexation. As of February 1, 2022, the excise tax was $0.442 per litre for unleaded petrol and diesel fuel. From April 1 to October 1, 2022, the federal budget lowered the fuel excise by 50% to 22.1 cents per litre for all fuels.
Fuel tax credits are available in some countries to encourage the use of renewable fuel sources and offset fuel taxes in specific circumstances. In the US, the Fuel Tax Credit is a program that allows eligible businesses to reduce their taxable income dollar for dollar based on certain types of fuel costs. This credit is generally not available to individual taxpayers and is limited to off-highway business usage, agriculture and farming, and boats and buses. To claim the Fuel Tax Credit in the US, businesses must complete Form 4136, Credit for Federal Tax Paid on Fuels, and provide documentation such as a list of vehicles and equipment used, proof of ownership, and invoices or receipts for fuel purchases.
In Australia, the Fuel Tax Credits Scheme was introduced in two phases, with the second phase taking effect on July 1, 2008. This scheme made all off-road business use of fuel eligible for subsidies, benefiting businesses that consume large amounts of fuel in processes such as mining, manufacturing, and construction. Similar to the US, certain grants and incentive schemes in Australia involving tax credits and rebates are available to businesses or industries that rely heavily on fuel, including transport, aviation, and the production of clean fuels.
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How fuel excise tax rates are indexed
In the United States, federal excise tax rates on traditional motor fuels have been set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel since 1993. State excise tax rates for gasoline vary across the country. For instance, in 2025, Alaska had the lowest tax rate on gasoline at $0.0895 / gallon, while Massachusetts had the highest tax rate on aviation fuel at $0.335 / gallon. These excise taxes are separate from other state taxes and fees, such as environmental taxes and inspection fees. Additionally, a small portion of the fuel tax (0.1 cents per gallon) is allocated to the Leaking Underground Storage Tank Trust Fund.
In Australia, the main fuel tax is also an excise tax, levied by the federal government. The fuel excise tax rate has been adjusted over the years, with changes occurring in 2001, 2008, and 2014. In 2001, the Howard government adjusted the excise rates due to the introduction of the Goods and Services Tax (GST), which is applied on top of the fuel excise tax at a rate of 10%. As a result of the GST, the automatic indexation of the fuel excise tax was halted. However, in 2014, the Abbott government reintroduced indexation, with adjustments made twice a year on February 1 and August 1. From April 1 to October 1, 2022, the federal budget reduced the fuel excise tax by 50% to 22.1 cents per litre for all fuels.
The indexation of fuel excise tax rates can be a complex and dynamic process, influenced by various factors such as inflation, government policies, and economic conditions. In some cases, governments may choose to adjust excise tax rates to compensate for the introduction of other taxes or to promote specific economic or environmental goals. Additionally, exemptions, rebates, and incentive schemes may be implemented to support certain industries or encourage the use of cleaner fuels.
While the specific mechanisms for indexing fuel excise tax rates may vary by jurisdiction, the goal is typically to ensure that tax rates remain relevant and effective over time. Indexing allows tax rates to be adjusted periodically to account for changes in factors like inflation or fuel prices, ensuring that the tax revenue generated can continue to support essential infrastructure and transportation projects.
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How fuel excise tax impacts businesses
In Australia, fuel tax is collected as excise tax on the production or importation of fuel, with an additional 10% goods and services tax (GST) imposed on the excise tax. This "double dipping" was compensated for by lowering the excise when the GST was introduced in 2001. The fuel excise tax rate is adjusted twice a year, on the 1st of February and the 1st of August, based on the consumer price index (CPI).
The fuel excise tax has significant implications for businesses, particularly those that rely heavily on fuel or have large vehicle fleets. In recognition of this, the Australian government has implemented various measures to alleviate the burden of fuel excise tax on businesses. Firstly, small businesses with an aggregated turnover of less than $10 million (increased to $50 million from 1 July 2021) are allowed to report and pay their excise obligations monthly, rather than weekly as is the case for most businesses. Secondly, certain industries that are heavily dependent on fuel, such as transport, aviation, and mining, can benefit from grants, incentive schemes, and tax credits or rebates. For example, the Australian Fuel Tax Credits Scheme allows businesses that consume large amounts of fuel in their operations, such as mining, manufacturing, and construction, to claim fuel tax credits. Finally, in response to rising fuel prices, the federal government temporarily halved fuel excise rates for a six-month period in 2022, providing some relief to businesses.
While these measures provide some assistance to businesses, the impact of fuel excise tax on businesses in Australia is still substantial. The tax increases the cost of doing business, particularly for those that are fuel-intensive or have large fleets. This can affect the profitability and competitiveness of these businesses, especially if they are unable to pass on the increased costs to their customers. Additionally, the complexity of the fuel tax system, with its various rates, exemptions, and credits, can create administrative burdens for businesses, requiring them to navigate and comply with a intricate set of rules and regulations.
On the other hand, the fuel excise tax can also create opportunities for businesses. For instance, businesses that are able to efficiently manage their fuel consumption or find alternative fuel sources may be able to reduce their tax obligations and gain a competitive advantage. Additionally, businesses that provide products or services related to fuel efficiency or alternative energy may benefit from increased demand as other businesses seek to mitigate the impact of fuel excise tax.
Overall, the fuel excise tax has a notable impact on businesses in Australia, affecting their costs, operations, and competitiveness. While the government has implemented measures to alleviate the burden, it remains a significant factor that businesses need to navigate and manage effectively. Understanding and adapting to the fuel excise tax environment can be crucial for businesses seeking to maintain their profitability and competitiveness in the Australian market.
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Frequently asked questions
As of February 1, 2022, the fuel excise tax in Australia is $0.442 per litre on unleaded petrol fuel and $0.442 per litre on diesel fuel.
The main fuel tax in Australia is an excise tax, which is levied by the federal government.
Most fuel excise is reported and paid on a weekly basis. Small businesses with an aggregated turnover of less than $10 million ($50 million from July 1, 2021) can report and pay their excise obligations monthly.
Petrol used as fuel in aircraft is taxed at $0.03556 per litre.
In the United States, the federal excise tax is 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel.
