Written by Conor Faughnan
Oil prices are falling. Crude oil is down by about 20% since June 2014 which has a lot of people wondering why pump prices haven’t decreased in the same manner.
The answer? Mainly, tax. However the Euro has also weakened against the dollar, taking away some of the gains, and European wholesale prices are a little high, too. But more than anything else it is Irish taxes that mean our retail prices haven’t fallen by nearly as much at the pumps.
The total taxation for both petrol and diesel is given below. Most of that tax is fixed as excise duty per litre and hence it does not change as the price moves up or down (with the exception of VAT at 23%). This means that the more that fuel drops in price overall the higher the proportion of that price that is tax.
A tax free litre of petrol would cost approximately 60 cent at current (November 2014) prices. Of that figure the retailer gets approximately 4 cent (if he’s lucky). The wholesaler & distributor between them get about 8 cent. That leaves 48 cent which includes transport costs, refinery costs and the cost of the oil itself. The oil price component of a litre of petrol is only 40 cent or less.
When looking at fuel prices there are three main factors to consider. The first of the price of oil, the second is the exchange rate between the Euro and the US dollar, and the third is the wholesale price of refined fuel in Europe.
In the last 4 months the price of a barrel of oil has fallen by about 28%. At the same time the Euro has weakened against the dollar so the oil price in euros is only down about 20%. European wholesale prices can often be volatile (sometimes suspiciously so) but that does not seem to be a huge factor at the moment.
Disappointingly for some, we don’t really expect to see a drop of more than 10 cent per litre from August through to November. That has more-or-less come through with some additional falls expected in the next couple of weeks. Typically it takes about 3-4 weeks for a fall in the oil price to be reflected at the retail pumps in Ireland.
There are four forms of tax on fuel. One is excise duty, which is charged by the litre. The second is Carbon tax, which is charged by the tonne. The third is the ‘NORA’ levy (National Oil Reserves Agency) levy which is 2 cent per litre. All three of these taxes are charged in the same way in that they are fixed amounts per litre and do not fluctuate as the overall price increases. All three are subject to the fourth tax which is VAT at 23%.
Carbon Tax currently works out before VAT at 5.586 cent per litre of petrol, and 6.517 cent per litre of diesel.
Changes since the emergency budget of 2008:
October 2008 8 cent per litre was added to excise duty on Petrol.
April 2009 5 cent per litre was added to excise duty on Diesel.
December 2009 Carbon Tax: 4.2 cent Petrol and 4.9 per litre Diesel
December 2010 Excise duty increased by 4 cent per litre on Petrol and 2 cent on Diesel.
December 2011 Carbon tax was increased by 33% (from €15 to €20 per tonne)
which including VAT is 1.4 cent Petrol & 1.6 cent Diesel.
December 2011 Vat increased from 21% to 23%. Vat is always added after all other taxes.
Excise duty figures are provided by the Department of Finance with the Carbon Tax included. The current rates are:
Petrol: 587.71 per 1,000 litres
Diesel: 479.02 per 1,000 litres
The fourth is VAT itself, which is of course a percentage and therefore does fluctuate as the price increases. A little confusingly, this means that the more expensive fuel becomes the percentage of the tax taken in total decreases. This is despite the motorist paying more tax (via VAT).
On current prices*, the rate of taxation on both fuels is as follows:
|Pump price||€ 1.54|
|Excise including carbon||58.771c|
|Tax as %||58.10%|
|Pump price||€ 1.45|
|Excise including carbon||57.902c|
|Tax as %||60.01%|
AA Fuel Usage figures: If a car does 12,000 miles per year (19,200 km) at a fuel consumption rate of 30 miles per gallon (9.42 litres per 100 km) that car will use 150 litres of fuel per month. At current prices that motorist will pay this €235.50 month for petrol of which €135.10 is tax.
For diesel, a similar car will pay €225.0 per month of which €130.05 is tax.
For each cent per litre added in excise duty the motorist will pay an additional €1.845 per month or €22.14 per annum.
Average retail fuel prices by month Dec12 to Nov14
*Estimated – AA Index figures due w/c 10th Nov
Note that our monthly index survey takes place in the second week of each month, hence the October prices are somewhat out of date. November prices are due next week; the figures I have given above are estimates in advance of the definitive survey but are pretty accurate all the same.