Purchase, circulation and fuel taxation

During the last decade, the UK and many other developed nations have reformed existing forms of road transport taxation to address a number of transport policy goals. This has involved modifying the design of purchase, circulation and fuel taxation to promote: • More fuel efficient vehicles • Alternative fuel vehicles • Cleaner fuels (lower emissions and/or low carbon) • Modal shift and traffic volume • Congestion reduction This chapter particularly explores the use of environmental taxation to promote Transport Demand Management (TDM) and identifies key principles of the design of such environmental taxes. It notes the importance of positioning a tax measure in relation to user decisions, its targeting and the threshold levels needed to provide a useful policy impact. Taxation measures considered include: • Initial vehicle purchase • ‘Circulation’ Tax on the ownership of vehicles • Tax on the use of vehicles It is concluded that purchase, circulation and fuel taxation can promote a variety of transport and environmental policy goals. It is important to distinguish between taxation measures to influence vehicle characteristics (technology, the type of fuel used and fuel economy) as opposed to the level vehicle use (TDM). Well designed purchase and circulation taxes can stimulate cleaner car technologies and fuels, but they are not an appropriate TDM measure. Road fuel duties are an effective general TDM measure but cannot be targeted on particular areas, times or for particular urban transport policy purposes. Road user charges can be targeted on such factors, and consequently, led by the established example of Singapore, followed by Norway and London, they are attracting much attention. The road transport taxation landscape is possibly set to change with many countries now seeing road user charges as potentially replacing the entire regime of transport taxation on purchase, ownership and fuel. But, rather than replacing fuel duties, evidence is mounting that to manage transport demand, road user charges need to be in addition to and not replace fuel and vehicle taxation. This may be a politically inconvenient truth, and the real challenge will be managing the transition towards an effective new transport taxation regime