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October 2005

Archived - Backgrounder – Oil and Gas Prices, Taxes and Consumers

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As a result of the recent spike in world oil prices, the Department of Finance Canada has been receiving numerous enquiries about taxes on gasoline.

As a service to the media and the general public, the Department has prepared this overview of key facts on:

  1. World oil prices.
  2. Federal and provincial gas tax rates.
  3. Federal and provincial gas tax revenues.
  4. Gasoline tax components by province/territory.
  5. International price and tax comparisons.
  6. The Government of Canada's position on current fuel tax issues.

1. World Oil Prices

The price of West Texas Intermediate (WTI) oil reached daily highs of nearly US$70 in both August and September 2005-an increase of almost 60 per cent since the beginning of the year.

Even after adjusting for inflation, oil prices are now nearing the record highs reached in the late 1970s. The doubling of prices witnessed over the past two years mirrors the price increases recorded in both the 1973 and 1979 oil price shocks.

The graph below demonstrates the link between gas prices and world oil prices over the last three decades.

Gasoline and Oil Prices (Adjusted for Inflation)

Gasoline and Oil Prices (Adjusted for Inflation)

2. Federal and Provincial Gas Tax Rates and Application

Gasoline and diesel fuel are taxed by the federal, provincial and territorial governments.

At the federal level:

At the provincial/territorial level:

The diagram below illustrates how the cost of a typical litre of gasoline (assuming a retail price of $1 per litre) is affected by federal and provincial taxes, as well as costs for crude oil, marketing and refining.

Approximate Price Components of Gasoline at $1 per Litre

3. Federal and Provincial Gas Tax Revenues (2005 data)

4. Gasoline Tax Components by Province/Territory

The table below provides a provincial-territorial breakdown of tax components of gasoline at one dollar per litre. The cities of Montréal, Vancouver and Victoria are shown on separate lines because regional surtaxes are levied in those cities that do not apply elsewhere in the province.

Tax Components of Gasoline at $1 per Litre


Province

Provincial Excise Tax (Flat Rate)

Provincial Sales Tax1

Federal Excise Tax (Flat Rate)

Total GST

GST "Tax on Tax" (Included in Total GST)

Total Tax Component


N.L.

16.5

7.5

10

6.5

1.86

40.5

P.E.I.2

21.3

N.A.

10

6.9

2.19

38.2

Nova Scotia

15.5

7.4

10

6.5

1.79

39.4

New Brunswick

14.5

7.3

10

6.4

1.72

38.2

Quebec

15.2

7.4

10

6.5

1.76

39.1

Montréal

16.7

7.5

10

6.6

1.87

40.8

Ontario

14.7

N.A.

10

6.4

1.73

31.1

Manitoba

11.5

N.A.

10

6.2

1.51

27.7

Saskatchewan

15

N.A.

10

6.4

1.75

31.4

Alberta

9

N.A.

10

6.0

1.33

25.0

B.C.

14.5

N.A.

10

6.4

1.72

30.9

Vancouver

20.5

N.A.

10

6.8

2.14

37.3

Victoria

17

N.A.

10

6.6

1.89

33.6

Yukon

6.2

N.A.

10

5.8

1.13

22.0

N.W.T.

10.7

N.A.

10

6.1

1.45

26.8

Nunavut

10.7

N.A.

10

6.1

1.45

26.8

Canada Avg.

14.5

2.2

10

6.5

1.72

33.2


1  In Nova Scotia, New Brunswick, and Newfoundland and Labrador, the provincial sales tax component is the provincial portion of the HST.

2 PEI's fuel tax rate is set on a monthly basis. 21.3 cents per litre represents the rate for regular unleaded gasoline effective September 1, 2005.

5. International Price and Tax Comparisons

At about one-third, the average tax component of gas prices in Canada is lower than in all other G7 countries except the United States. The graph below illustrates this comparison.

International Gas Prices (September 2005)

6. The Government of Canada's Position on Current Fuel Tax Issues

Fuel Tax Reductions

Some have argued that reducing fuel taxes would help consumers cope with high fuel costs. The Government's position has been that the personal income tax system is a more effective way to deliver tax relief to those who need it most.

Moreover, even a substantial reduction in federal taxes on fuel would have only a small impact on pump prices. This is due to the fact that high gas prices are less a result of taxes than of recent substantial increases in the world price of crude oil.

Another consideration is that gasoline tax revenues are used to support a broad range of programs that are valued by all Canadians, including health care, education and programs for seniors. In fact, Budget 2005 committed $5 billion in gas tax revenues over the next five years to support environmentally sustainable infrastructure for cities and communities (see table below for funding breakdown by year).

Funding Profile for Gas Tax Sharing Over Five Years


2005-06

2006-07

2007-08

2008-09

2009-10

Total


$600 million

$600 million

$800 million

$1 billion

$2 billion

$5 billion


Source: Budget 2005.

"Tax on Tax" Issue (i.e., Application of GST on Top of Other Taxes)

Some people question the way the GST is applied-i.e., as a "tax on tax" that includes provincial levies and federal excise taxes. However, this is inherent in the structure of the GST itself. Specifically, it applies to a broad base of goods and services and is calculated on the final amount charged for a good or service-including any federal, provincial or municipal taxes, levies or charges.

This long-standing approach greatly simplifies vendor compliance, and maintains the broad-based nature of the tax so that it can be maintained at a relatively low rate.

With regard to the GST on gasoline, the typical impact of tax on tax is less than 2 cents per litre (as shown in the table in Section 4) and does not vary with price changes at the pump.