"Incentives for use of bio-fuels and alternative fuels could also attract a larger share of the Fuel Tax allocation."

Fuel Tax Reform

16 Sep 2006

• From: The Board of Directors of the London Chamber of Commerce
• submitted by the Federal/Provincial Affairs Committee of the London Chamber of Commerce
• Presented and approved at the Canadian Chamber of Commerce AGM & Convention, September 2006
• Policy Area: FINANCE AND TAXATION

The Issue

Fuel is now commonly recognized as an essential commodity to commerce rather than as a luxury commodity. Historically, commodities that have traditionally attracted excise tax are alcohol, cigarettes, and jewelry. A greater share of the fuel tax should be allocated to infrastructure maintenance including highways, roads and bridges. Incentives for use of bio-fuels and alternative fuels could also attract a larger share of the Fuel Tax allocation.

Background

Currently, in Ontario 31.1 cents of tax is levied on every litre of fuel sold. This is comprised of 10 cents per litre Federal Excise Tax, 14.7 cents per litre Provincial Excise Tax and 6.4 cents of Goods and Services Tax. GST on the federal and provincial tax components amounts to 1.729 cents per litre which is effectively double taxation.

Excise tax is defined as a tax duty levied on the manufacture, sale or consumption within a country of certain commodities.

In 2005, approximately $4 billion was collected in federal excise taxes and another $2 billion in GST. Less than 2.5% of these amounts were reinvested into roads and highways. The 2005 federal budget committed $5 billion in gas tax revenues over 5 years to support environmentally sustainable infrastructure for cities and communities. Assuming the same levels of tax over the next five years, this commitment only represents 20% of the total fuel tax collected.

Recommendations

• That the taxes on fuel be harmonized and designated as the ‚ÄúFuel Tax‚Äù not unlike the harmonization of GST/PST in Quebec and the Maritime Provinces
• And, that the Fuel Tax be a fixed amount per litre that would require legislative change in order to increase or decrease the Fuel Tax amount

Note: The amount of the Fuel Tax should eliminate the elements of double taxation as well as roll back the deficit reduction excise tax increase from 1995 of 1.5 cents per litre.

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