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October 2005

Backgrounder
Oil and Gas Prices, Taxes and Consumers

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)

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 4 cents per litre. Since these amounts are charged at flat rates per litre rather than on a percentage basis, the amount of excise revenue the Government receives does not vary with price changes at the pump.

• The goods and services tax (GST) is 7 per cent of the final price paid for fuel, including federal and provincial excise taxes levied at the producer/wholesaler level, and is 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.

• Companies and self-employed people can claim full refunds of GST paid on any business-related expense, 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 for all provincial/territorial rates).

• As a national average, the 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-again averaging about 14.5 cents per litre.

• Special fuel surtaxes are levied in 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 Quebec, the Quebec Sales Tax 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.

Basically if The base price of oil goes a a penny, the all sort of factors in refinery costs are added in to get a base finisned Gasoline product. THen the government may impose several layers of taxation before you even get to pump it. Also Here is the US gas sales are very loosely regulated so you may see different prices from one station to the opne across the street from it. We ask the Govt to help control it but all they will do is add a nother layer of taxation to enforce the regulation. What a wonderfull world eh? Nice Catch 22 eh?