Regan Brown
Fuel tax is an excise tax imposed on the sale of fuel, which is often dedicated to transportation projects. The tax rates vary across countries and even within countries, with some countries imposing higher taxes on diesel than on gasoline. In the United States, for example, the federal excise tax on gasoline is 18.4 cents per gallon, while diesel fuel is taxed at 24.4 cents per gallon. Similarly, in India, central and state government taxes make up nearly half of the pump price of petrol. On the other hand, some countries like China have seen significant increases in fuel taxes over the years. The cost of fuel at the pump is impacted not only by excise taxes but also by sales taxes, environmental taxes, and other fees, making it challenging to determine the exact proportion of fuel costs that are attributed to taxes.
| Characteristics | Values |
|---|---|
| Purpose of fuel tax | To fund the construction and maintenance of roads |
| Fuel tax in the US | 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel |
| Fuel tax in California | 68.1 cents per gallon |
| Fuel tax in Illinois | 66.5 cents per gallon |
| Fuel tax in Pennsylvania | 58.7 cents per gallon |
| Fuel tax in Alaska | 8.95 cents per gallon |
| Fuel tax in India | Central government taxes make up 10-20% of the final cost, and state taxes make up 17-20% of the final cost |
| Fuel tax in the EU | Excise tax on gasoline was €0.651 per liter, and €0.531 per liter for diesel fuel |
| Fuel tax in South Africa | R14.23 per liter |
| Fuel tax trends | Fuel taxes have increased in more countries than they have decreased from 2003-2015, but the global mean gasoline tax has decreased due to greater consumption in low-tax countries |
| Fuel tax considerations | Fuel taxes can be considered regressive, and may not cover the full cost of road-related spending |
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What You'll Learn
US federal tax on gasoline
The US federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. This tax was last raised on October 1, 1993, and has not been adjusted for inflation, which increased by 111% from October 1993 to December 2023. This means that the real value of the tax has decreased over time. The revenue generated from this tax partly supports the Highway Trust Fund, with about 60% of federal gas taxes used for highway and bridge construction. The remaining 40% is allocated to earmarked programs, including a minority for mass transit projects.
In addition to the federal excise tax, individual states levy their own taxes on gasoline, which vary widely. As of 2024, California had the highest gas tax rate at 68.1 cents per gallon, followed by Illinois (66.5 cents) and Pennsylvania (58.7 cents). On the other hand, Alaska had the lowest rate at 8.95 cents, followed by Mississippi (18.4 cents) and Hawaii (18.5 cents). These state-level taxes are meant to function as user fees and pollution deterrents.
The first federal gasoline tax in the United States was created on June 6, 1932, with the enactment of the Revenue Act of 1932, which taxed 1 cent per gallon. Oregon became the first state to tax fuel on February 25, 1919, with a 1 cent per gallon tax. By 1939, many states levied an average fuel tax of 3.8 cents per gallon.
There have been proposals to increase the federal gasoline tax to fund and sustain the country's transportation infrastructure. For example, in February 2009, the National Surface Transportation Infrastructure Financing Commission recommended a 10-cent increase in the gasoline tax to offset the loss of purchasing power due to inflation. However, critics argue that much of the revenue from gas taxes is diverted to unrelated government programs and debt servicing.
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US state tax on gasoline
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. This federal tax was last raised on October 1, 1993, and has not been adjusted for inflation, which increased by 111% from October 1993 to December 2023. This means that the real value of the tax has decreased over time. The federal excise tax on aviation gasoline (Avgas) is $0.194 per gallon, with a surtax of $0.141 per gallon when used in a fractional ownership program aircraft. Kerosene used for aviation (jet fuel) is taxed at $0.244 per gallon, with a reduced rate of $0.219 per gallon for non-commercial aviation fuel-ups at airport terminals.
On top of the federal tax, state and local taxes are applied to fuel. As of April 2019, these 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 gas and 60.29 cents per gallon for diesel. However, the specific tax rates vary by state. For example, in 2025, California had the highest tax rate on gasoline at $0.596 per gallon, while Alaska had the lowest at $0.0895 per gallon.
The first US state to tax fuel was Oregon, on February 25, 1919, with a 1 cent per gallon tax. By 1939, the average state fuel tax had increased to 3.8 cents per gallon. Since then, state fuel taxes have undergone numerous revisions. As of 2016, 19 states and the District of Columbia have fuel taxes that vary based on factors such as the price of fuel, inflation, and vehicle fuel economy.
Fuel taxes in the US are typically used to fund transportation projects, such as highway and bridge construction, and mass transit projects. In Fiscal Year 2016, federal fuel taxes raised $36.4 billion, with $26.1 billion coming from gasoline taxes. However, some argue that an increase in fuel tax is needed to sustain the country's transportation infrastructure. Additionally, fuel taxes can be used as a form of implicit carbon pricing, promoting ecological sustainability.
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EU jet fuel tax
Jet fuel is currently exempt from fuel tax within the EU. However, the European Commission has been considering an EU-wide jet fuel tax to address the issues of carbon emissions and climate change. In 2019, a European Citizens' Initiative aimed to end the tax exemption on aviation fuel, but it failed to receive enough support.
According to the 2006 German Energy Tax Act, jet fuel for commercial flights is exempt from energy taxation. Nevertheless, there have been calls for an excise duty on kerosene, a major component of jet fuel, to make flying more expensive and address sustainability concerns.
The EU has proposed an overhaul of energy tax rules to make them more climate-friendly, including the introduction of taxes on fuels for flights within the bloc. The aim is to encourage the use of sustainable fuels and reduce greenhouse gas emissions. The proposal includes a minimum tax rate for aviation fuel, starting at zero in 2023 and gradually increasing over a 10-year period. However, private jets, cargo flights, and "business aviation" would be exempt from the tax.
The European Commission's draft proposal suggests that the tax would be phased in for passenger flights, with a potential exemption for intra-EU cargo-only flights. The tax rates would be based on a fuel's energy content and environmental performance, making polluting fuels more expensive. A test taxation rate of €330 per thousand litres of jet fuel was considered, which could lead to an 11% drop in emissions and a 10% increase in average ticket prices.
While an EU-wide jet fuel tax could have environmental and financial benefits, there are concerns about its impact on the competitiveness of European airlines. Additionally, the aviation industry has argued that airlines might refuel their aircraft outside the EU to avoid the tax, and there are challenges in achieving unanimous approval from all EU countries for such a proposal.
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India's central government tax
India currently has the highest taxes on fuel in the world, with taxes comprising over 69% of the pump price of petrol and diesel. Fuel tax is an excise tax imposed on the sale of fuel, which is primarily used by governments to generate revenue for transportation projects or as a source of general income. Taxes on transportation fuels have been advocated as a way to reduce pollution and the possibility of global warming, as well as to conserve energy.
In India, the central government levies an excise duty on the production of petroleum products, while state governments tax their sale. The central excise duty on petrol is Rs.19.90/litre or Rs 32.9 per litre, making up 31% of the retail price. For diesel, the central excise duty is Rs 31.8 per litre, contributing to 34% of the retail price. The central government also charges a tax on diesel at Rs.15.80/litre.
The total tax on petrol in India is 55% of the retail price, while for diesel, it is 50%. In Delhi, for example, every litre of petrol that retails at Rs 71.26 includes taxes of Rs 49.42, while for every litre of diesel at Rs 69.39, taxes account for Rs 48.09. The state government of Delhi levies a Value Added Tax (VAT) of 30% on petrol and 16.75% on diesel, which goes into its own funds. Other states also levy VAT and sales tax at varying rates, leading to differences in fuel prices across the country. For instance, Andhra Pradesh charges a VAT of 31% on petrol, while Madhya Pradesh levies a VAT of 33% on petrol and 23% on diesel.
The Indian government's revenue from excise duties on fuel is expected to increase by Rs 1.6 lakh crore this fiscal year. However, the increase in fuel duties is unlikely to provide significant relief to the government, as demand for oil in the country has decreased.
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California's gas tax
California has some of the highest gas taxes in the United States. As of July 2025, the state's gasoline excise tax is 61.2 cents per gallon, and the diesel excise tax is 46.6 cents per gallon. These figures represent increases from 59.6 cents and 45.4 cents, respectively, with the change being tied to inflation. California's gas tax is adjusted annually in July based on the California Consumer Price Index.
The state's gas tax is intended to fund infrastructure projects and accelerate progress toward emissions goals. California's gas tax includes the Low Carbon Fuel Standard, which requires fuel producers to reduce the carbon intensity of their fuels over time. This program has added an estimated 12 cents per gallon to the gas tax (expected to increase to 47 cents in 2025). Additionally, California's Cap-and-Trade Program reflects the costs associated with fuel supplier emissions, further increasing prices.
Other factors contributing to California's high gas prices include special fuel requirements, isolated petroleum markets, and supply chain issues. California mandates a special blend of gasoline designed to reduce pollution and improve air quality. This blend is more expensive to produce and is primarily supplied by in-state refineries, limiting the state's gasoline supply. California also faces higher shipping costs for gasoline imports from other countries.
The combination of taxes, fees, and environmental requirements results in high gas prices for California drivers. As of March 2025, the total taxes and fees amounted to $0.90 per gallon, with federal taxes accounting for $0.18 and the remaining 0.72 comprising state excise tax, state sales tax, and an underground storage tank fee.
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Frequently asked questions
On average, as of April 2019, state and local taxes and fees add 34.24 cents to gasoline and 35.89 cents to diesel, for a total US volume-weighted average fuel tax of 52.64 cents per gallon for gas and 60.29 cents per gallon for diesel.
In India, central and state government taxes make up nearly half of the petrol pump price. Central government taxes amount to about 10-20% of the final cost, while state taxes vary, averaging 17-20% of the final cost.
As of 2017, the excise tax on gasoline in the EU was €0.651 per liter (regional prices varied from €0.407 to €0.6682). With a VAT rate of 20%, the percentage of the total price of gasoline that came from taxes was 63.9%.
A fuel tax is an excise tax imposed on the sale of fuel, typically for transportation. Fuel tax receipts often fund transportation projects, but they can also be used for general revenue or to promote ecological sustainability.
Fuel taxes are considered regressive taxes. They can also fail to cover the full cost of road-related spending. With the rise of electric vehicles, fuel taxes are becoming less effective as user fees for road use.
