What are the excise duties on petrol and diesel and how much we really pay

Petrol and diesel have exceeded 2 euros per liter and continue to cost more and more. Peaks of up to € 2.52 for the first and € 2.61 for the second were recorded with distributors in some Italian locations. Estimates on the long-term impact on Italians’ pockets are worrying. In the immediate future, the constant increase in fuels has put the haulage sector in a “state of extreme necessity” (words of the national association of the public transport sector), and stopped the boats of the fishermen of many Italian cities. According to the latest survey by the Ministry of Ecological Transition, updated to Monday 7 March, the average price of gasoline has risen to 1.953 euros per liter, of which around 72 cents in excise duties and 35 cents in VAT. The price without taxes is therefore 87 cents. This is 84.28% more than in the previous survey of 28 February.

The increase is the result of three factors: the increase in the price of oil, the effect of the exchange rate between the euro and the dollar and the combination of the excise duty on fuel and VAT. The first two elements are influenced by the ongoing war in Ukraine. The third is the only aspect on which the government can and has been called upon to intervene. Excise duties, a decisive component for defining the final price of fuels, have ended up in the crosshairs of consumers, also because over the years politics has often talked about cuts in these taxes without ever realizing them. But what are excise duties and how much do they weigh on the prices of petrol, diesel, LPG and methane gas? What do we really pay when we fill up our car? Let’s try to clarify.

What are excise duties on petrol?

Excise duties are levied on the manufacture and sale of consumer products. It is an indirect tax that is applied to certain goods at the time of production or sale, paid by the producer or trader by transferring the burden to the consumer, i.e. including it in the sale price. In the past, governments have made extensive use of it to raise funds with readily available funds, useful for dealing with wars and natural disasters such as earthquakes or floods. They therefore guarantee immediate and constant revenue for the state coffers.

Are excise duties paid only on fuel?

No, those on fuels are the best known and “hated”, but we also pay them for other products and goods. Excise duties are currently applied in Italy on mineral oils and their derivatives (petrol, diesel, LPG, methane gas), on alcoholic beverages (liqueurs, grappa, brandy), on matches, on tobacco products (cigarettes), on electricity and on lubricating oils.

How much excise duty do we pay on fuel and for what reason?

As mentioned, governments use this indirect tax to obtain immediate revenue and manage moments of crisis or emergencies. For example, in the 1930s the price of gasoline increased to finance war expenses in Ethiopia, but already four months after the end of the conflict the tax on the sale of gasoline was revised downwards. Taxes were then introduced to support the reconstruction following the Vajont disaster, to cope with the consequences of the flood in Florence and earthquakes such as those in Friuli and Irpinia. To be precise, today there is talk of a single excise duty on fuel. In fact, since 1995, no distinction is made between the various components of this tax and the resulting resources do not finance specific activities, but the entire state budget. Even if they have been incorporated into a single undifferentiated tax and today no reference is made to the original reasons, there are 18 components at the basis of the tax on fuels. Here they are:

  • 1) financing of the Suez crisis (1956) – 0.00723 euros;
  • 2) post-disaster reconstruction of the Vajont (1963) – 0.00516 euros;
  • 3) post-flood reconstruction of Florence (1966) – 0.00516 euros;
  • 4) post-earthquake reconstruction of Belice (1968) – 0.00516 euros;
  • 5) post-earthquake reconstruction in Friuli (1976) – 0.00511 euros;
  • 6) post-earthquake reconstruction of Irpinia (1980) – 0.0387 euros;
  • 7) funding for the UN mission in Lebanon (1982 – 1983) – € 0.106;
  • 8) funding for the UN mission in Bosnia (1996) – 0.0114 euros;
  • 9) renewal of the autoferrotranvieri contract (2004) – 0.020 euros;
  • 10) purchase of ecological buses (2005) – 0.005 euros;
  • 11) post-earthquake reconstruction of L’Aquila (2009) – 0.0051 euros;
  • 12) funding for culture (2011) – 0.0071;
  • 13) Libyan migration crisis financing (2011) – 0.040 euros;
  • 14) reconstruction for the flood that hit Tuscany and Liguria (2011) – 0.0089 euros;
  • 15) financing of the “save Italy” decree (2011) – 0.082 euros;
  • 16) financing for the post-earthquake reconstruction of Emilia (2012) – 0.024 euros;
  • 17) financing of the “manager bonus” (2014) – 0.005 euros;
  • 18) financing of the “doing decree” (2014) – 0.0024.

Can the state lower the price of fuel?

The value of the excise duty on fuels changes over time, fluctuating upwards and then decreasing. According to the latest survey by the ministry of ecological transition, the combination of excise duty and VAT accounts for 55.3% of the final price of gasoline. According to a report from the Union Energies for Mobility (Unem), it is precisely the excise duties and VAT that make gasoline so expensive. In Italy, its price is 3.9 cents higher than the European average, but without taxes it would cost six cents less than in the rest of Europe. Can the state intervene? And if so, how?

Adjusting the excise duty down could reduce the impact of pump price increases, but it would also have an immediate effect on state finances. As regards the overall taxation (excise duties plus VAT), in 2020 the tax revenues deriving from petroleum products are estimated to be around 31.8 billion euros. The previous year, the revenue had even been 7.6 billion higher. It is difficult, if not impossible, to find alternatives to such significant and secure revenues over time. In recent weeks, the government has worked to smooth out the energy price increases, and some positive news could come from the law converting the so-called bill decree, even if not decisive. Additional resources would be needed, for example to sterilize VAT on fuels, but perhaps it would only be a palliative for the considerable rise in prices.

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About David Martin

David Martin is the lead editor for Spark Chronicles. David has been working as a freelance journalist.

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