The Government has announced an immediate six month temporary reduction to fuel taxes. Fuel excise and excise-equivalent customs duty rates for petrol, diesel and other fuels (excluding aviation fuels) will be halved from 30 March 2022 to 28 September 2022. This is part of a suite of measures addressing cost of living pressures and aims to deliver direct relief to the retail price of fuel.
Under the current rates, common fuels such as petrol and diesel are subject to excise or customs of 44.2 cents per litre. The change means a new rate of 22.1 cents per litre will apply from Tuesday, 29 March 2022.
However, the price of fuel to consumers should reduce by 24.31 cents per litre after taking into account the GST levied on excise. The excise rate is indexed bi-annually in February and August, with indexation to proceed in August based on half rates.
A reduction in excise levied will, of course, reduce any corresponding fuel tax credit entitlements for businesses. Under the fuel tax credits regime, businesses can claim a fuel tax credit for fuel used in carrying on their business, other than for light vehicles travelling on public roads.
These changes are expected to cost the Government $2.975 billion, when netted off against the reduced fuel tax credit payments, across the next six months.
BDO Comment
From a consumer and economic perspective, BDO welcomes this initiative which will reduce the cost of living and promote economic activity and growth. This should provide a six month economic turbo-charge across all industries and sectors, especially if the reduction in transportation costs trickle down to the ultimate consumers of goods and services.
From a business perspective, this should provide a cash boost as it reduces the cost of transport for all goods and services across the country and we hope businesses and consumers in the supply chain will benefit.
For businesses already claiming a good majority of their fuel tax credits, (for example in the mining and agricultural industries,) outside of the cash flow impacts, there will not be much of an effect. However, these businesses will need to update their calculation processes to ensure the revised rates are applied. Care must be taken to identify the precise fuel purchase date, noting the change in rate does not neatly align to an accounting period.
As a matter of practical concern, businesses may need to check any applicable ‘pass through clauses’ and pricing mechanisms in commercial contracts that are sensitive to fuel costs or fuel tax credit entitlements to ensure contract pricing is appropriately administered consistently with the new rates.
No comment was made in relation to the Road User Charge. We would expect this is also subject to the same 50% reduction, but this is yet to be seen.