Archived - Backgrounder
Oil and Gas Prices, Taxes and Consumers
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As a result of increased prices for crude oil on global markets, and higher retail prices for gasoline in Canada, the Department of Finance has been receiving numerous enquiries about taxes on gasoline.
As a service to the media and the general public, Finance Canada has prepared this overview of key facts on:
- World oil prices;
- Federal and provincial gas tax rates;
- Federal and provincial gas tax revenues;
- Gasoline tax components by province/territory;
- International price and tax comparisons;
- Fuel tax issues; and,
- The Competition Bureau and Natural Resource Canada's Fuel Focus.
1. World Oil Prices
The price of West Texas Intermediate (WTI) oil reached highs of more than US$70 per barrel in both May and June 2006 - an increase of almost 20 per cent since the beginning of the year.
After adjusting for inflation, oil prices are nearing the record highs reached in the late 1970s. The doubling of prices witnessed over the past years mirrors the price increases recorded during both the 1973 and 1979 oil price shocks.
The graph below demonstrates the link between gas prices and world oil prices over the past 35 years.
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:
- The excise tax on gasoline is 10 cents per litre; while the excise tax on diesel fuel and aviation fuel is four cents per litre.
- Effective July 1, 2006, the GST is 6 percent of the final price paid for fuel, including federal and provincial excise taxes levied at the producer/wholesaler level and embedded in the retail price. The GST does not apply to provincial sales taxes levied at the pump as a percentage of the final price.
- Most businesses and self-employed people can claim full refunds of GST paid on business-related expenses, including gasoline and other kinds of fuel. These refunds are called input tax credits.
At the provincial/territorial level:
- Tax rates on gasoline range from 6.2 cents per litre in the Yukon to around 21 cents per litre in Prince Edward Island (see table in section 4 of this document for all provincial and territorial rates).
- As a national average, provincial tax rates on gasoline are about 14.5 cents per litre.
- Tax rates on diesel range from 7.2 cents per litre in the Yukon to around 20 cents per litre in Prince Edward Island - averaging about 14 cents per litre.
- Special fuel surtaxes are levied in the regions of Victoria, Vancouver and Montréal.
- In New Brunswick, Nova Scotia, and Newfoundland and Labrador, the provincial portion of the harmonized sales tax (HST) is levied on the final price of fuel at the pump (excluding GST).
- In Québec, the Québec Sales Tax (QST) is levied on the final price of fuel at the pump (including GST).
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
Note: Note: Values for crude, refiner and retailer are estimated and are for demonstration purposes only.
3. Federal and Provincial Gas Tax Revenues
- The Government of Canada raises about $5 billion per year from excise taxes on fuel, consisting of about $4 billion from gasoline excise taxes and about $1 billion from diesel and aviation fuel.
- While the GST is not reported on a commodity-by-commodity basis, GST revenues from gasoline and diesel fuel may be estimated using data for retail prices and sales volumes. For 2005, GST revenues from gasoline and diesel fuel, net of input tax credits, are estimated at about $1.6 billion. On this basis, the GST rate reduction will save Canadians an estimated $230 million per year on their purchases of gasoline and diesel fuel.
- Collectively, the provinces and territories raise about $8 billion per year from excise taxes on gasoline and diesel fuel.
4. Gasoline Tax Components by Province/Territory
The table below provides a breakdown of tax components of gasoline for different cities across Canada. The cities of Montréal, Vancouver and Victoria are shown in italics because of the regional surtaxes that are levied.
Table - Tax Components of Gasoline (in cents)
|Province||Retail Price Excluding Taxes*||Provincial Excise Tax (flat rate)||Federal Excise Tax (flat rate)||Total GST||Provincial Sales Tax||Total Tax Component|
|St John's (NFLB)||69.0||16.5||10||5.7||7.6||39.9|
|*Source : Fuel Focus (NRCan) - Tax components based on average retail gasoline prices (excluding taxes) for the first six months of 2006.|
5. International Price and Tax Comparisons
In Canada, taxes comprise, on average, about one-third of the retail price of gasoline. This tax component is lower than in all other G7 countries, except the United States. The graph below illustrates this comparison.
Note : Values in Canadian dollars
Source: International Energy Agency
6. Fuel Tax Issues
6a) Recent Developments
The GST was reduced to 6 percent from 7 percent, effective July 1, 2006, providing tax relief to Canadians across a broad range of purchases, including gasoline and diesel fuel. Based on retail fuel sales for 2005, the savings that will accrue to Canadian consumers on purchases of gasoline and diesel fuel are estimated at $230 million per year.
In addition, Budget 2006 confirmed the Government's commitment to share gas tax revenues over this and the next three years to support environmentally sustainable infrastructure for cities and communities. (See table below for funding breakdown by year).
Table: Funding Profile for Gas Tax Sharing over Four Years
In thousands of dollars
|Source: Budget 2006|
6b) Application of the GST
Some people question the way the GST is applied to gasoline and diesel fuel - 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 and is the norm for value-added taxation around the world.
Specifically, the GST 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 longstanding approach greatly simplifies vendor compliance and maintains the broad-based nature of the tax, so that it can be set at a relatively low rate.
The amount of GST from "tax-on-tax" is about 1.5 cents per litre for gasoline (calculated as 6 percent of the sum of the 10 cent federal and average 14.5 cent provincial excise taxes per litre of gasoline) and 1.1 cents per litre for diesel fuel (calculated as 6 percent of the sum of the 4 cent federal and average 14 cent provincial excise taxes per litre of diesel fuel). These amounts do not vary with price changes at the pump.
7. Additional Information on Fuel Prices
7a) Competition Bureau - Gasoline Pricing Examinations
The Competition Bureau is an independent law enforcement agency that promotes and maintains fair competition so that all Canadians can benefit from competitive prices, product choice and quality service. The Competition Bureau oversees the application of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act.
The Competition Bureau concluded recently its examinations of high gasoline prices following Hurricane Katrina and allegations by independent retailers of predatory pricing and margin squeezing in the Canadian gasoline industry. The Competition Bureau found no evidence of a national conspiracy to fix gasoline prices.
Additional information on the gasoline pricing examinations conducted by the Competition Bureau is available online at www.competitionbureau.gc.ca.
7b) Fuel Focus
Through Fuel Focus, Natural Resources Canada (NRCan) connects Canadians with the latest information on the price of oil and petroleum products such as gasoline. Current and factual information on price changes will help Canadians understand how the global petroleum markets affect their lives. Fuel Focus delivers:
- Price information on crude oil and fuels such as gasoline and furnace oil;
- Clear explanations for the factors affecting fuel prices;
- Analyses of oil and gasoline market conditions; and,
- Information and tools to help Canadians manage their energy costs.