Good afternoon. I am here today to provide the committee with a brief overview of federal taxation as it applies to petroleum products, including gasoline.
Federal taxation of petroleum products consists of two elements. First, there is the federal excise tax levied at a fixed rate on certain petroleum products. Second, the goods and services tax, or GST, is applied on a general basis to petroleum products in a manner similar to most goods and services consumed in Canada. I would first like to discuss the excise tax and then proceed to discuss the GST.
With regard to excise taxes, the federal government levies excise taxes on gasoline, aviation gasoline, diesel and aviation fuel. There are no federal excise taxes applicable to other kinds of fuel, such as home heating oil, propane, natural gas or electricity.
The federal excise tax on gasoline and aviation gasoline is levied at a rate of 10¢ per litre, while the federal excise tax on diesel and aviation fuel is imposed at a rate of 4¢ per litre. Those are fixed amounts that do not vary with changes in the retail price of fuel.
This means that federal revenues from federal excise taxes are a function of the volume of fuel that is sold, but not the retail price. Accordingly, the recent increase in retail price for gasoline and diesel fuel does not have a direct positive impact on federal excise tax revenues. In fact, to the extent that higher pump prices cause motorists to drive less and reduce their consumption of motor fuels, federal excise tax revenues could actually decline.
Revenues from federal excise taxes form part of the Consolidated Revenue Fund and are used to support a broad range of programs and services for Canadians. There is also a link between excise tax revenues from gasoline and recent federal investment in infrastructure.
Budget 2007 announced an investment in infrastructure of more than $16 billion over seven years. Including the funding that was announced in budget 2006, federal support under its long-term plan for infrastructure will total $33 billion from 2007-08 to 2013-14. A key element of this plan to invest in infrastructure is a gas tax fund, which provides significant stable long-term funding for municipalities. Budget 2007 included $8 billion to extend the gas tax fund at $2 billion per year from 2010-11 to 2013-14. Notionally based on an amount equivalent to 5¢ per litre of the federal excise tax on gasoline, this gas tax funding represents more than one-third of the $33 billion investment in infrastructure.
That concludes my overview of federal excise taxation of fuel. I would like to now turn to the goods and services tax.
The goods and services tax, or GST, is levied on most goods and services consumed in Canada, including petroleum products such as gasoline, diesel fuel, home heating oil, natural gas and propane.
The GST is levied on an ad valorem basis, on the final selling price for goods and services. Maintaining a broad base allows the GST to be levied at a relatively low rate and makes compliance with the tax easier for businesses. Of note, the GST was reduced from 7% to 6% on July 1, 2006.
One of the key features of the GST is that businesses are able to claim full refunds, called input tax credits, with respect to the GST they incur when purchasing goods and services that are used to make taxable supplies. This means that most commercial enterprises are able to recover the GST they pay on their purchase of petroleum products through a full input tax credit, including on gasoline and diesel fuel. For consumers there is a GST low-income credit, which is designed to help offset the impact of the GST for those most in need.
Because the GST is levied as a percentage of the final price, GST revenues vary with changes in the final selling price of goods and services. For example, an increase of 10¢ per litre in the retail price of gasoline will lead to an additional amount of GST of roughly 0.6¢ per litre.
This additional GST does not necessarily imply that the overall fiscal impact on federal revenues is positive. To the extent that increased spending on one commodity, such as gasoline, results in reduced consumption of other goods and services, the net impact on aggregate GST revenues may well be negligible.
In addition, increases in the selling price of certain goods, including gasoline and home heating fuels, affect the Consumer Price Index, which in turn results in increased benefits payable by the Government of Canada under programs such as the GST Low Income Credit, the Canada Child Tax Benefit, Old Age Security, and the Guaranteed Income Supplement.
That concludes my remarks on the federal taxation of petroleum products.
I would be very pleased to address any questions you may have concerning this topic with my colleagues Geoff Trueman and Sandy MacLaren.