Why don’t we have a single excise law in Europe?

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on why we do not harmonize national excise legislation in Europe.

The price of a liter of gasoline will go up by 21 cents on January 1, 2024, and the price of a liter of diesel will go up by 13 cents. This is due to new excise tax measures by the outgoing cabinet. Business owners in the border regions are worried; because of the rising excise taxes, the price difference of fuel with neighboring countries continues to increase. “We have the highest excise tax on gasoline in Europe, and therefore also the highest price at the pump. We are already paying 15 cents more for gasoline than Germany and 25 cents more than Belgium. Add these 21 cents and you get enormous differences,” Erik de Vries, director of the trade association for independent pump owners NOVE, told BNR. He believes it would be very welcome if the outgoing cabinet would intervene. “The government must ensure that excise taxes are back in line with the countries around us.” How realistic is this thought?

Fixed amount
“The excise tax on fuel in the Netherlands is a fixed amount: 79 euro cents on a liter of euro95. But that is not the only tax. The government also charges 21 percent VAT. That VAT moves with the price, excise taxes do not. They are indexed with the table correction factor,” Knaap explains. The table correction factor is calculated on the basis of the consumer price index figures (cpi) of Statistics Netherlands (CBS). Knaap: “Inflation also plays a role here, and because it was so high a year ago, fuel excise duty, like other taxes, is indexed at the start of the coming calendar year, based on a table correction factor of nearly 10 percent.”

Minimum excise duty rate

This gives the Netherlands the highest excise tax rates in Europe, Knaap confirmed. “There is a minimum excise duty rate in the European Union (EU) of 36 cents, with each country free to levy its own duty above that minimum. This also creates differences between countries. Luxembourg, for example, has a much lower rate than the Netherlands, at 54 cents on a liter of euro95.” But not only excise taxes differ from country to country, so do VAT rates. Knaap: “Luxembourg levies 16 percent VAT; the Netherlands 21 percent. In addition, fuel prices are affected per country by production costs (refining and transport for example, ed.) and market structure (including the degree of competition between gas stations, ed.).”

Autonomy
To Knaap, it only makes sense that there are differences; that is a consequence of the local autonomy that countries have in terms of financial matters (within EU frameworks). “Countries are allowed to make their own policies when it comes to taxes and excise taxes. The only condition Europe sets is that government deficits do not get out of hand and debts remain affordable,” Knaap said. But why is there a minimum excise rate on fuel anyway? “Simple,” Knaap argues, “to prevent the race to the bottom. Europe does not want countries to compete with each other in this area and end up in a downward excise spiral. So less than the 36 cents is not allowed, but more is.” So in theory, the Netherlands could apply a lower rate than those 79 cents, for example equal to Luxembourg’s 54 cents, but politicians are not opting for this, Knaap says. “In setting the fuel excise tax rates, the government weighs a broad palette of interests, including budgetary importance, the effect on the climate and border effects.”

Other countries

Part of the considerations, according to Knaap, include traffic congestion. “We are a densely populated country and the Netherlands has a lot of cars per kilometer of road compared to other countries. You don’t want it to get too crowded, and traffic jams everywhere because driving is cheap. Not to mention the negative environmental effects. Moreover, public transportation in the Netherlands is well organized, and you can easily reach many destinations by bicycle as well. In short, mobility in the Netherlands is in order, and that can also be a reason not to lower excise taxes or to equalize them with other European countries which, in turn, all want to be able to do their own deliberations and make their own choices.” 

10-euro difference on a full tank
Nevertheless, there is a strong call among business owners, especially in border regions, for harmonization of excise taxes in Europe. “The differences with Germany and Belgium run up considerably on the basis of the recommended prices at the pump per liter of euro95. That will soon save more than 10 euros on a full 40-liter tank. In other words, people can make a detour of dozens of kilometers, fill up in a neighboring country, and still spend less on gas, if you don’t include maintenance and depreciation. And you can see people doing this too; something that border entrepreneurs feel in their wallets. So, it makes sense for them, along with the ANWB and others, to be campaigning against the new excise proposals,” says Knaap. But he also calls for realism. “Excise taxes are a certain source of income for the government, which is simply needed.”