Fuel tax
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General Information
A fuel tax (also known as a petrol tax, gasoline tax, gas tax or fuel duty) is a sales tax imposed on the sale of fuel. Frequently, as in the United States, the funds are dedicated or hypothecated to transportation, or even roads, so that the fuel tax is considered by many a user fee. In other countries, the fuel tax is considered a source of general revenue and is not designated for roads. The demand for the automobile is relatively inelastic — a one percent increase in the price of petrol will reduce quantity demanded by much less than one percent. As a result, a fuel tax will be more effective at raising revenue than most other sales taxes; however, it will also be more regressive.
In most countries the fuel tax is not imposed on fuel which is not intended for transportation such as fuel used to power agricultural vehicles and home heating oil which is identical to diesel. This creates an economic incentive to illegally use fuel not intended for transportation, which might be reduced by dying the non-transportation fuel.
United States of America
The first U.S. state tax was introduced in February 1919 in Oregon. It was a 1 cent per U.S. gallon tax. In the following decade, all 48 US States (and Washington, DC) introduced a gasoline tax, and by 1939 an average tax of 3.8¢ per U.S. gallon of fuel was levied by the individual states.
While state fuel taxes had been around for more than a decade, the first federal gasoline tax in the United States was created on June 6, 1932 with the enactment of the Revenue Act of 1932 (1 cent per U.S. gallon sold). The U.S. federal gasoline tax as of 2003 was 18.4 cents a U.S. gallon (4.86 ¢/L), and the gasoline taxes in the various states range from 10 cents to 33 cents, averaging about 22 cents (6 cents per litre).
People's Republic of China
In the People's Republic of China, the fuel tax has been a very contentious issue. Efforts by the State Council and the Communist Party of China to institute a fuel tax in order to finance the National Trunk Highway System have run into strong opposition from the National People's Congress, largely out of concern for its impact on farmers. This has been one of the uncommon instances in which the legislature has asserted its authority.
United Kingdom
As of 2004 fuel duty in the United Kingdom is 50.19 p/L for unleaded petrol (US$3.60 per U.S. gallon in Jan 2005 money rates).
Effects of a fuel tax
Because of the inelastic nature of demand for petrol, in the short run the tax will be an effective source of revenue. In the long run, however, people are more able to adjust their consumption of petrol; that is, over a period of years, people will consume less as the price increases (by buying more fuel-efficient cars, for instance). Thus, some environmentalists have advocated a fuel tax as a way to reduce reliance on environment-damaging fossil fuels.
See also
External link
- Fuel tax (http://ww2.hmce.gov.uk/business/othertaxes/roadfuels.htm) in the United Kingdom
- History of the gas tax (http://www.artba.org/economics_research/reports/gas_tax_history.htm) in the United States