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5.1. Diesel rebates Eight member states offer the option to hauliers to partially recover the diesel tax they pay. They typically do this for two reasons. The first is to respond to pressure from the haulage industry complaining about competitive disadvantages vis-a-vis foreign competitors. The second is related to this; by keeping diesel taxes for trucks low they hope to seduce more foreign trucks to fill up at their petrol stations, securing domestic tax revenue from foreigners. At EU level this competition is pointless; in the end trucks need to fill up somewhere. But, more importantly, it is harmful. The ‘losing’ member states need to secure income through much more harmful forms of taxation such as labour taxes. And what’s more, it leads to a ‘race to the bottom’ in fuel taxes, harming the climate as much as energy security and employment.
Below there is a table with member states and the amount that can be reclaimed50. These values have
changed throughout time, so only the latest values are shown:
Applying the rebates to the amount of diesel sold to trucks yields a total amount reclaimed of over €4.5 billion, up from almost nothing in 2000. This implies that, on average in the EU, they get a fuel tax rebate of €0.04/l; they pay €0.44/l whereas cars pay €0.48/l. This is lost revenue for the member states involved, and also for its neighbours in the form of fuel tourism. More and more, member states are implementing similar measures each year.
In-house research by Magnus Nilsson. In some member states, each region has a different value. In those cases the values were averaged.
Average for 2014
Another piece of evidence that the problem is worsening is that the real fuel tax difference paid by
hauliers has constantly been increasing during the last decade, as can be seen in the figure below:
Figure 8: Real fuel taxes, in euro, in 2014 per litre of transport fuel, including national rebates This discount makes fuel tourism for trucks more acute. In countries like Slovenia, were the fuel tax is not relatively low, with this mechanism they almost reach the very minimum level. That is also the case for Spain, Hungary, Romania and Belgium. In cases like Belgium, it is hard to say if they are trying to compete with neighbours with already low levels (Luxembourg) or if they are trying to attract fuel tourism as well.
The table below shows the actual excise duties paid in all member states in 2014, from low to high52:
Three countries seem to be under the legal value, although in reality they might be at the very minimum. The differences might be due to the exchange rate used in those three countries (none of them are part of the Euro zone).
Decreasing the costs for hauliers through rebates is not environmentally or economically efficient, even for the sector involved. Evidence shows that when new costs, related to distance, are introduced, sectors become more efficient53. A good example is when road charging for hauliers was introduced in Germany with the Maut system, which translated into a decrease in the average distance travelled per tonne of goods. That meant that were are fewer empty trucks driving around and action was taken to reduce distances driven, either by improving their route planning or changing trade patterns.
Besides, hauliers, like any other business in the EU buying a good or service, don’t pay VAT on fuels. VAT is only paid by the end user of a product or service. Companies transfer the VAT received to the tax authorities on a monthly, quarterly, or annual basis, depending on turnover and specific member state rules. On purchasing goods or making use of services, companies regularly have to pay VAT themselves.
The taxes collected and paid can be balanced out in the input VAT deduction. For companies, VAT represents a transitory item only. When the fuel is purchased in another member state different from its own, there is a European mechanism in place to reclaim it as well. In principle, an increase in fuel VAT doesn’t impact truck companies. The only impact that an increase in VAT can have on hauliers is regarding their cash-flow. In most cases, if the VAT balance is positive, they need to pay to national treasuries on a quarterly basis. If the balance is negative, they need to wait until the annual declaration to receive it.
Based on fuel consumption, the total amount of VAT that was reclaimed by hauliers in 2014 added up to almost €27 billion.
5.2. Discounts Hauliers often/usually buy fuel in bulk, either because they have an agreement with fuel suppliers or because they can store it themselves. This study has tried to estimate the magnitude of the discounts that they benefit from. In general, the larger the annual consumption, the larger the discount. Some Significance & CE Delft, 2010. Price sensitivity of European road freight transport – towards a better understanding of existing results.
a study by companies in the sector were consulted54 to estimate an average discount level. We found out that the discount tends to be between 8 and 12 euro cent below the advisory price, although it depends on the company and member state. The discount is applied to the cost price, not including either the fuel tax or VAT. Some countries already include discounts in their methodology when reporting to the Oil Bulletin, while that is not the case for others. Given this and other considerations, we concluded that an average 4discount on the cost price can be considered realistic. If a median discount value of 8% had been considered, hauliers would have saved more than €5.5 billion only in 2014.
5.3. Actual price paid When all the factors explained above are taken into account (reclaims on fuel taxes and VAT, and bulk discounts), an actual sales-weighted average price of purchase can be calculated. The result is that in 2014 hauliers were buying diesel 33 cent cheaper than other users of the fuel. The difference in price between the two, in real terms, has increased throughout the last decades as can be seen in the graph below.
6. Case studies
6.1. Luxembourg Luxembourg is the best example of a country taking advantage of the weaknesses of the current Energy Taxation Directive (ETD). Its strategic location and tiny size helped it to become a “fuel tax haven”.
Luxembourg has always followed the minimum diesel tax levels allowed by the ETD. Luxembourg, with a GPD per capita of more than €75,000, has the same diesel taxation levels as Lithuania or Latvia, that are slightly above €10,000 GDP per capita. On average, in 2014 member states got 4.7 % of their overall revenues from road fuel taxes. In the case of Luxembourg, that goes up to 7%. But they are also losing out due to minimum prices not being revised with inflation. Back in 2004, 10% of their overall revenues came from road fuel taxes only.
Work performed by CE Delft for T&E during April 2015.
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6.2. Germany During the first half of the decade Germany had one of the highest diesel fuel taxes in real terms in Europe, as a result of the ecological tax reforms by the red-green government that began in 1999. In fact, for five years in a row the country had Europe’s highest fuel taxes. However, many things have changed since then. A new government had taken office by the end of 2005. Since 2006, fuel taxes have been decreasing in real terms. In nominal terms, they have not increased prices since 2004. Given a cumulative inflation of 19% over the period, Germany has each year seen lower diesel fuel taxes. In 2014, the excise duty on diesel was below the EU average.
6.3. United Kingdom The UK has been the only country to take the decision to tax diesel and petrol at the same level per litre.
As explained in a previous chapter, this is better than having lower taxation levels for diesel. After an ambitious fuel tax increase programme initiated by the Thatcher government in years when oil was cheap, the Blair government stopped it in 2000. This together with the falling pound, has caused taxes to fall quickly in euro terms in the past 15 years (see graph below).
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6.4. Netherlands The Netherlands is a good example of a country that corrects fuel prices with inflation. During the last two decades, it has managed to keep fuel taxes stable in real terms. However, it still has a large gap between petrol and diesel. In fact, the difference in 2014 in tax level between the two was more than double the EU average (28 euro cent versus 14 cent).
6.5. Belgium In Belgium the gap between petrol and diesel is relatively large, 17 cent versus 14 cent on average in the EU. However, the federal government recently announced, as part of the 2016 budget, that it would raise diesel taxes while keeping petrol taxes stable55. According to initial plans, the increase will be 3.5 cent for 2016 and it would go up to 10.6 cent by 2018.
It is unclear how it would impact the other gap – the one in diesel taxes among member states.
Luxembourg is a neighbouring country of Belgium. Fuel tourism for cars is unlikely to happen at a large scale, because population density in Belgium in areas close to Luxembourg is low. However, if Belgium also implemented these changes for commercial diesel, the problem of fuel tourism for hauliers would only get worse. To avoid it, Belgium might react in two different ways: implementing different taxes for commercial and non-commercial diesel, or through increasing the already existing tax rebates for commercial diesel. Having cheap Luxembourg diesel around the corner, Belgium has its hands tied in that respect. This is a clear example of why an European approach is needed.
Le soir, 2015. Accord sur le tax shift: électricité, alcool, tabac et diesel coûteront plus cher. 24/07/2015.
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6.6. Finland Back in 2010, Finland had almost the lowest diesel excise duty at the time (34 cent per litre in nominal terms). However, since then they have made progress to considerably increase excise and benefit from the advantages of high fuel taxes. By 2014, they had gone up to 46 cent per litre, which was almost the EU average in that same year. It is an example of movement in the right direction. However, they can continue improving the policy. The gap between petrol and diesel is still 16 cent per litre, which is above the EU average. While this gap is smaller than in the past, there is still room for improvement. Finland does not suffer from fuel tourism, as their neighbouring EU countries have even higher diesel taxes and, in any case, most of the population lives on a peninsula with no road connection to any other EU member state, except a circuitous route to Sweden.
7. Conclusions and Policy recommendations Fuel taxes are key to cutting CO2 emissions and to achieving GHG reduction targets. They are also key from economic, energy independence and even wealth distribution points of view. However, in real terms, they
have been decreasing in the EU. Some of the main conclusions are:
Fuel tax and revenue trends
In 2014, the average road fuel tax paid by motorists and hauliers, excluding VAT, was 52 euro cent • which, corrected for inflation, is 20% below the 2000 level of 64 cent/l. This surprise finding can be explained by 1) inflation eroding nominal tax rates 2) a shift from petrol to lower-tax diesel fuel and 3) diesel tax rebates for trucks that have been introduced by eight countries over the past 15 years.
Total tax revenues, in real terms, excluding VAT, have been decreasing over time too. In 2000, they • were around €200 billion, in 2014 they were down to €167 billion. The have also plummeted as a percentage of GDP, from 1.7% to 1.2% in 2014. Also as a percentage of total tax revenues, from above 6% in 2000 to below 5% in 2014.
a study by Fuel for cars: trends in alignment of tax rates for petrol and diesel The gap between petrol and diesel taxes in Europe is quite unique in the world and is the chief reason why diesel engines have taken off in Europe and not worldwide. Ravaged post-war Europe needed tax revenues, petrol was used by well-off people able to afford cars, hence governments started to tax it.
Diesel was used by trucks and was lightly taxed or not at all.
The weighted-average fuel price paid by motorists in 2014 was €1.39 per litre and the price at the • time of writing (early September 2015) was €1.24. This is around 20% below the peak prices both in 2012 and the early 1980s, which were over €1.50 in real terms.
The gap in tax levels for diesel and petrol paid by motorists is currently 14 cent/l or 30% higher for • diesel. Since a litre of diesel contains around 10% more energy than a litre of petrol, the tax gap per unit of energy is higher. Over the past 15 years, the gap has been coming down very slowly, at a rate of around half a cent per litre per year. The indirect fuel subsidy per diesel car, assuming it consumes 15,000 litres of fuel over its lifetime, and including 21% average VAT, currently amounts to €2,600;
Differences across the EU vary from zero (UK) to 28 cent/l (the Netherlands); per unit of energy • that is 10 to 44% lower tax on diesel than on petrol;
Italy, Finland, Sweden and Austria are the main countries that have taken voluntary action to • close the gap by several cent in recent years. In Greece the gap has actually increased significantly because petrol tax was raised in the budgetary crisis and diesel tax was not.
Diesel tax for trucks: a race to the (€0.33/l) bottom Trucks pay on average 44 cent/l diesel tax in the EU now, 4 cent below the rate cars pay and 15% • below the inflation-corrected 52 cent/l they paid in 2000. Truck diesel tax rebates totalled around €4.5bn in 2014, up from €0 in 1999.
The number of countries giving fuel tax rebates to hauliers has gone up from only Italy in 2000 to • eight now (Italy, France, Spain, Romania, Belgium, Hungary, Ireland and Slovenia).
The number of countries that tax truck diesel at or close to the minimum level is now 10. In recent • years, Belgium, Greece, Hungary and Latvia have joined. Finland worked to increase their truck taxes, currently being far from the minimum.