Vehicle Fuel Tax (Denmark)

Vehicle Fuel Tax, Denmark

Introduced
Environmental concerns first became incorporated into the vehicle fuel tax scheme explicitly in 1986, when unleaded petrol was taxed at a lower rate than leaded.

Aims
The initial purpose of this tax was to generate revenue and to control imports of fuels. As environmental concerns became increasingly important, further increases are hoped to reduce the demand for vehicle fuels and diesel.

Design
Scope
Households and VAT-registered entities are liable to the vehicle fuel taxes, whereas public transport receives a 100% refund.

Allocation of Revenues
The revenue enters into the overall government budget.

Tax Rates
During the 1990's the differential typically resulted in a consumer price difference of about 7%. Today, tax differentiation is used in favour of fuels supplied with the use of vapour recovery installations. Petrol taxes were raised (and diesel taxes lowered) in 1990, and industry became liable to the tax on diesel fuel in 1991.
As a consequence of the tax reform from 1994, vehicle fuel taxes have increased substantially in the period 1994-1998. Tax increases have been in the order of 20%. A tax differentiation in favour of petrol with low content of benzene entered into force on January 1st, 1998. There are five levels. By the year 2000, only petrol with benzene contents lower than 1% could be sold in Denmark. The tax on diesel is less than the tax on petrol. In June 1999, tax incentives were introduced for diesel with a sulphur content below 50ppm. Although diesel is taxed less than petrol, diesel vehicles are more expensive to purchase. Thus, due to the design of the tax system, households typically drive petrol cars and commercial ventures tend to opt for diesel. For consumers, the tax constitutes about two-thirds of the price of petrol and one third of the price of diesel.
The 2005 reform of CO₂ tax introduced a CO₂tax on petrol and the basic excise was lowered to maintain the overall rate.
Excise duties on transport fuels (€cent/l) (Speck et al., 2006).

1985
1990
1996
2000
2002
2005
Petrol

Basic excise charge
28.31
36.91
53.27
60.64
63.52
60.49
Unleaded rebate

8.27
8.83
8.72
8.75
8.74
CO₂ tax

2.96
Total Tax (unleaded)
28.31
28.64
44.44
51.92
54.77
54.71
Vapour recovery rebate

0.4
0.4
0.4
0.4
Diesel

Basic excise charge
4.49
22.4
27.45
34.61
37.14
37.5
Light diesel rebate

1.36
1.34
1.35
1.34
CO2 tax

3.67
3.62
3.63
3.23
Total Tax
4.49
22.4
29.76
36.89
39.42
39.39

Refunds
Since 1995, a 0.03DKK/l tax rebate has been grated to gasoline sold from petrol stations with a vapour recovery system (Speck et al., 2006).

Performance
In 1998, the revenue from petrol tax was DKK8834 million (€1190 million) and the revenue from diesel tax was DKK3800million (€512million). According to the Danish EPA, the demand for fuels has not been affected much by the tax increases. This is explained as being a result of an increase in the demand for transport and may not necessarily be a reflection of insensitivity to demand to fuel prices. Evidence suggests that the tax differentiation schemes have an effect, particularly in relation to unleaded petrol. Between 1986 and 1994, unleaded petrol went from having a nil share in the market to almost 100%. The tax differential was supported by other measures including:
A gradual lowering of the limits for the content of lead in unleaded petrol;
emission limits forcing new cars to include catalytic converters (which need unleaded petrol);
awareness building - information campaigns etc.
The differential also encouraged oil companies to develop and use a no-lead lubrication additive that could be used in older cars. As the taxes are imposed on drivers only, they can be said to have some positive income-distributional effects, especially as public transport is exempt (assuming the lower-income groups are taking public transport instead of driving).
Annual tax revenue 1998: MDKK 5,444 (DEPA, 1999)
Total revenue 1998: MDKK 23, 734 High registration tax has slower the growth in vehicle numbers. (DEPA, 1999)
The tax creates an incentive to purchase vehicles with good-fuel economy and the fuel economy in Danish vehicles is generally high compared to other European countries. This indicates that the system as such, does not provide a significant incentive for vehicle owners to keep their old cars. The high registration tax may be argued to have an income-distribution effect, because it renders it fairly expensive to acquire a vehicle. Assessing the relative economic burden that the tax imposes on various incomes groups, it is typically concluded that the registration tax and the taxes on vehicle fuels have a relatively higher impact on the higher income groups than on the low-income groups. (DEPA, 1999). Rough and preliminary estimations of the new Owners Green Tax show that it has some environmental effect.

Notes
Consumer fuel prices tend to be at levels comparable to those applied in Germany due to border trade concerns.

References

Danish Environmental Protection Agency (DEPA), 2000, Economic Instruments in Environmental Protection in Denmark. Available at: http://www.mst.dk/default.asp?Sub=http://www.mst.dk/udgiv/Publications/2000/87-7909-568-2/html/default_eng.htm
Publications/2000/87-7909-568-2/html/default_eng.htm
Speck et al.,

Written by admin

Vehicle Fuel Tax, Denmark

Introduced

Environmental concerns first became incorporated into the vehicle fuel tax scheme explicitly in 1986, when unleaded petrol was taxed at a lower rate than leaded.

Aims

The initial purpose of this tax was to generate revenue and to control imports of fuels. As environmental concerns became increasingly important, further increases are hoped to reduce the demand for vehicle fuels and diesel.

Design

Scope

Households and VAT-registered entities are liable to the vehicle fuel taxes, whereas public transport receives a 100% refund.

Allocation of Revenues

The revenue enters into the overall government budget.

Tax Rates

During the 1990's the differential typically resulted in a consumer price difference of about 7%. Today, tax differentiation is used in favour of fuels supplied with the use of vapour recovery installations. Petrol taxes were raised (and diesel taxes lowered) in 1990, and industry became liable to the tax on diesel fuel in 1991.

As a consequence of the tax reform from 1994, vehicle fuel taxes have increased substantially in the period 1994-1998. Tax increases have been in the order of 20%. A tax differentiation in favour of petrol with low content of benzene entered into force on January 1st, 1998. There are five levels. By the year 2000, only petrol with benzene contents lower than 1% could be sold in Denmark. The tax on diesel is less than the tax on petrol. In June 1999, tax incentives were introduced for diesel with a sulphur content below 50ppm. Although diesel is taxed less than petrol, diesel vehicles are more expensive to purchase. Thus, due to the design of the tax system, households typically drive petrol cars and commercial ventures tend to opt for diesel. For consumers, the tax constitutes about two-thirds of the price of petrol and one third of the price of diesel.

The 2005 reform of CO₂ tax introduced a CO₂tax on petrol and the basic excise was lowered to maintain the overall rate.

Excise duties on transport fuels (€cent/l) (Speck et al., 2006).

	1985	1990	1996	2000	2002	2005
Petrol
Basic excise charge	28.31	36.91	53.27	60.64	63.52	60.49
Unleaded rebate		8.27	8.83	8.72	8.75	8.74
CO₂ tax						2.96
Total Tax (unleaded)	28.31	28.64	44.44	51.92	54.77	54.71
Vapour recovery rebate			0.4	0.4	0.4	0.4
Diesel
Basic excise charge	4.49	22.4	27.45	34.61	37.14	37.5
Light diesel rebate			1.36	1.34	1.35	1.34
CO2 tax			3.67	3.62	3.63	3.23
Total Tax	4.49	22.4	29.76	36.89	39.42	39.39

Refunds

Since 1995, a 0.03DKK/l tax rebate has been grated to gasoline sold from petrol stations with a vapour recovery system (Speck et al., 2006).

Performance

In 1998, the revenue from petrol tax was DKK8834 million (€1190 million) and the revenue from diesel tax was DKK3800million (€512million). According to the Danish EPA, the demand for fuels has not been affected much by the tax increases. This is explained as being a result of an increase in the demand for transport and may not necessarily be a reflection of insensitivity to demand to fuel prices. Evidence suggests that the tax differentiation schemes have an effect, particularly in relation to unleaded petrol. Between 1986 and 1994, unleaded petrol went from having a nil share in the market to almost 100%. The tax differential was supported by other measures including:

A gradual lowering of the limits for the content of lead in unleaded petrol;
emission limits forcing new cars to include catalytic converters (which need unleaded petrol);
awareness building - information campaigns etc.

The differential also encouraged oil companies to develop and use a no-lead lubrication additive that could be used in older cars. As the taxes are imposed on drivers only, they can be said to have some positive income-distributional effects, especially as public transport is exempt (assuming the lower-income groups are taking public transport instead of driving).

Annual tax revenue 1998: MDKK 5,444 (DEPA, 1999)

Total revenue 1998: MDKK 23, 734 High registration tax has slower the growth in vehicle numbers. (DEPA, 1999)

The tax creates an incentive to purchase vehicles with good-fuel economy and the fuel economy in Danish vehicles is generally high compared to other European countries. This indicates that the system as such, does not provide a significant incentive for vehicle owners to keep their old cars. The high registration tax may be argued to have an income-distribution effect, because it renders it fairly expensive to acquire a vehicle. Assessing the relative economic burden that the tax imposes on various incomes groups, it is typically concluded that the registration tax and the taxes on vehicle fuels have a relatively higher impact on the higher income groups than on the low-income groups. (DEPA, 1999). Rough and preliminary estimations of the new Owners Green Tax show that it has some environmental effect.

Notes

Consumer fuel prices tend to be at levels comparable to those applied in Germany due to border trade concerns.

References

Danish Environmental Protection Agency (DEPA), 2000, Economic Instruments in Environmental Protection in Denmark. Available at: http://www.mst.dk/default.asp?Sub=http://www.mst.dk/udgiv/Publications/2000/87-7909-568-2/html/default_eng.htm

Publications/2000/87-7909-568-2/html/default_eng.htm

Speck et al.,