Fuel Taxes

Business, Legal & Accounting Glossary

Definition: Fuel Taxes




Full Definition of Fuel Taxes


Bung taxes are enforced on sales of fuel. Fuel taxes imposed on different types of fuel are not uniform. Maximum taxes are imposed on products that are used to power automobiles. Lower taxes are seen on fuels that are employed in domestic use like heating oil and agricultural machines. Governments treat fuel taxes as a source of general revenue.

Reasons For Fuel Taxes

  • Fuel taxes are imposed on users for the following reasons:
  • Fee for road use: Revenues generated from fuel taxes are used to finance traffic services like road policing and road planning. Fuel taxes are collected by both central and state governments. Greater fuel-efficient vehicles have contributed to lower fuel revenues in recent years.
  • Funding for transportation programs
  • An essential component of Transportation Demand Management (TDM): Fuel is the single largest expense in a vehicle’s life cycle. The transport system can be made more efficient by increasing fuel taxes. A higher fuel price will lower the use of automobiles and result in a more streamlined transport network.
  • Promote energy conservation: An increase in fuel tax catalyzes fuel conservation. Lesser fuel use translates into reduced emissions. The looming spectre of global warming may also be pushed back.
  • Vehicle insurance funding: Automobile insurance can be funded by taxes on fuel.

A Constant Demand

Fuel taxes are regarded as an inexhaustible source of revenue due to the relatively inelastic demand for automobile fuels like petrol and diesel. Adoption of more fuel-efficient vehicles may change the nature of demand. The invention of petrol substitutes and complementary fuel products will predictably lessen the demand for traditional fossil fuels.

Higher fuel prices tend to lessen the number of cars on the road. Greater fuel-efficient vehicles are also seen. On the flip side, lower fuel prices mean reduced revenues for the government. It has been computed that a 10% fuel price rise is accompanied by a 2.7% fall in fuel consumption. Lesser fuel consumption is computed to be 7% over a period of 10 years.


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Definition Sources


Definitions for Fuel Taxes are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th March, 2020 | 3 Views.