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Why lowering fuel taxes benefits the wealthiest and what alternatives are out there

the gradual rise in the price of fuel experienced by consumers long before Russia’s invasion of Ukraine has led sectors such as service stations to call for a reduction in fuel taxes.

A measure that several European countries have already taken and which, however, warns the Transport & Environment (T&E) pressure group, will lead to an inequitable rebate between drivers with more and less incomebenefiting the former to a greater extent.

When a VAT reduction does not translate into a price drop: Germany as an example

The study of T&E warns that a cut in fuel taxes funnels the benefits to the wealthiest.

Tye

Thus, the richest 10% of drivers will receive eight times more in fuel tax cuts than the poorest, on average, because they consume much more fuel driving larger vehicles, they explain.

“A 15-cent cut in fuel tax for six months will reduce the bill for a BMW X5 driver by 300 euros compared to 85 euros for a Citroën C3 driver. Meanwhile, people using public transport They don’t get anything.”

Also, warns the environmental group, oil companies will adjust their prices to offset part of the tax cut. That is to say: the lowering of taxes does not translate into a lowering of prices.

Something that already happened in Germany in 2020when they temporarily reduced the VAT applied to gasoline and diesel.

Which it was the result? In the case of diesel, service stations transferred 83% of the tax reduction to prices. For gasoline, the transfer was between 40% and 61%, explains Juan Luis Jiménez, Doctor of Economics and professor at the University of Las Palmas de Gran Canaria.

This expert puts two alternatives on the table: reduce taxes on groups that do have the capacity to negotiate with producers and improve competition in the market.

fuels

In Spain, drivers are the ones who pay the least taxes on hydrocarbons in the EU (which dictates taxation in each country), to which must be added 21% VAT. These revenues are allocated to the Autonomous Communities to be able to finance public spending on health or education.

The Spanish Confederation of Service Station Entrepreneurs has asked the Government for a temporary reduction in the taxation of fuels. Something that would mean, they say, “a real ball of oxygen for Spanish companies”, without alluding to the consumer.

for now, Spain does not consider reducing VAT on fuelWhat Yes, several European countries have done it, such as France.Belgium, Italy, Ireland, Portugal or the Netherlands, among others.

TYE Study

A measure that, according to T&E, will cost European taxpayers close to 9,000 million euros. What do they propose? Tax Russian oil imports: “This could generate up to 27,000 million euros in revenue,” he explains.

Something that from the EU, highly dependent on Russian gas and oil, is already being put on the table.

Also designing income support measures (such as consumption checks, reduced labor taxes) focused on middle and lower class families that do not encourage the use of oil, as well as reducing the price of public transport are other proposed alternatives.

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