Diesel Fuel - Taxation

Taxation

Diesel fuel is very similar to heating oil, which is used in central heating. In Europe, the United States, and Canada, taxes on diesel fuel are higher than on heating oil due to the fuel tax, and in those areas, heating oil is marked with fuel dyes and trace chemicals to prevent and detect tax fraud. Similarly, "untaxed" diesel (sometimes called "off-road diesel") is available in some countries for use primarily in agricultural applications, such as fuel for tractors, recreational and utility vehicles or other noncommercial vehicles that do not use public roads. Additionally, this fuel may have sulphur levels that exceed the limits for road use in some countries (e.g. USA).

This untaxed diesel is dyed red for identification, and should a person be found to be using this untaxed diesel fuel for a typically taxed purpose (such as "over-the-road", or driving use), the user can be fined (e.g. US$10,000 in the USA). In the United Kingdom, Belgium and the Netherlands, it is known as red diesel (or gas oil), and is also used in agricultural vehicles, home heating tanks, refrigeration units on vans/trucks which contain perishable items such as food and medicine and for marine craft. Diesel fuel, or marked gas oil is dyed green in the Republic of Ireland and Norway. The term "diesel-engined road vehicle" (DERV) is used in the UK as a synonym for unmarked road diesel fuel. In India, taxes on diesel fuel are lower than on petrol, as the majority of the transportation for grains and other essential commodities across the country runs on diesel.

In some countries, such as Germany and Belgium, diesel fuel is taxed lower than petrol (gasoline) (typically around 20% lower), but the annual vehicle tax is higher for diesel vehicles than for petrol vehicles. This gives an advantage to vehicles that travel longer distances (which is the case for trucks and utility vehicles) because the annual vehicle tax depends only on engine displacement, not on distance driven. The point at which a diesel vehicle becomes less expensive than a comparable petro vehicle is around 20,000 km a year (12,500 miles per year) for an average car. However, due to a rise in oil prices from about 2009, the advantage point started to drop, causing more people opting to buy a diesel car where they would have opted for a gasoline car a few years ago. Such an increased interest in diesel has resulted in slow but steady "dieseling" of the automobile fleet in the countries affected, sparking concerns in certain authorities about the harmful effects of diesel.

Taxes on biodiesel in the U.S. vary between states; some states (Texas, for example) have no tax on biodiesel and a reduced tax on biodiesel blends equivalent to the amount of biodiesel in the blend, so that B20 fuel is taxed 20% less than pure petrodiesel. Other states, such as North Carolina, tax biodiesel (in any blended configuration) the same as petrodiesel, although they have introduced new incentives to producers and users of all biofuels.