OECD Taxation Working Papers N. 44 – TAXING VEHICLES, FUELS, AND ROAD USE: OPPORTUNITIES FOR IMPROVING TRANSPORT TAX PRACTICE.
OECD Taxation Working Papers N. 44 – TAXING VEHICLES, FUELS, AND ROAD USE: OPPORTUNITIES FOR IMPROVING TRANSPORT TAX PRACTICE. This paper discusses the main external costs related to road transport and the design of taxes to manage them. It provides an overview of evolving tax practice in the European Union and the United States and identifies opportunities for better alignment of transport taxes with external costs. There is considerable scope for improving transport tax practice, notably by increasing the use of taxes based on road use. Distance charges offer great promise in delivering more efficient road transport. In heavily congested areas, targeted charges are a cost-effective way of reducing congestion. Fiscal objectives provide an impetus for change as improving vehicle fuel efficiency and fleet penetration of alternative fuel vehicles erode traditional tax bases, particularly those relating to fossil fuel use. A gradual shift from an energy-based approach towards distance-based transport taxes has the potential to establish a stable tax base in the road transport sector in the long run. Traditional structures of road transportation taxes in most countries focus on fuels and, to a lesser extent, vehicles. The central message of this paper is that there is considerable scope for beneficial change in this structure, by increasing the use of taxes based on road use, particularly distance charges and congestion charges. Distance charges can raise revenue at economic costs comparable to or lower than those of fuel taxes, and their appeal from this point of view will increase strongly when road transport decarbonises. Distance charges also offer great promise in delivering more efficient road transport, particularly if they can be differentiated to some degree according to vehicles’ emission profiles and to exposure to pollution. The main external cost of transport in urban areas relates to congestion.