Abstract
In most African countries, as in Europe, road transport is treated in a distinctive way within the fiscal system, through the imposition of special excises on motor fuels and vehicles. In particular, motor fuels are taxed considerably more heavily than most other goods and services, and the excises on motor fuels frequently raise large revenues. The initial motivation for these taxes has generally been the scale and buoyancy of the potential revenues, and the relative ease of tax assessment and enforcement. In particular, high rates of tax can be levied on motor fuels at low administrative cost and with limited risk of evasion, if large-scale commercial oil importing and refining activities can be closely controlled and monitored by the revenue authorities.
While the revenue potential of these taxes will continue to be important, wider considerations relating to efficient infrastructure charging and environmental effects are also likely to influence future policy decisions about the level and structure of road transport taxes. Individual road users impose various costs on other road users, and on society as a whole, through the effects of their travel and transport decisions on pollution, traffic congestion, accidents, and the physical deterioration in the road infrastructure. Taxes on fuels and on vehicles can be used to ensure that individual travel and transport choices reflect the costs that individual road users impose on others - for example, by taxing motor fuel to reflect vehicle pollution, or by charging the users of heavy trucks for the costs of repairing the damage they cause to the road surface. Ideally, an efficient structure of road taxes might aim to charge every road user for the precise social costs incurred as a result of their decisions, although in practice the available tax instruments can only approximately reflect the various social costs of road transport.
Formulating appropriate policies towards the taxation of road transport is, however, far from straightforward, due to the varied range of social costs (externalities) associated with road use, and the complex interactions between road transport taxes, the pricing of other modes of transport, the provision of road infrastructure, and issues of spatial development. There are also important equity issues in the taxation of road transport and its substitutes, since in most countries private motoring is associated with richer households, while poorer households are more dependent on public transport. In some countries, too, the revenues generated from taxes on road transport provide the funds used to build or maintain the road infrastructure, and the design and structure of road taxes then affects the adequacy of resources for road building and maintenance.
This multiplicity of objectives means that designing road transport taxes will involve some difficult tradeoffs and compromises. This chapter tries to identify some of the main considerations that will need to be taken into account, focussing in particular on those likely to be most relevant to the policy context in African countries. Following this introduction, the chapter is in six main sections. Section 2 characterises the range of possible taxes that can affect road transport use and externalities. Section 3 discusses the criteria for efficient revenue-raising through taxes on road transport, and section 4 considers how far road taxes can be structured to achieve efficient pricing of environmental externalities and other uncharged social costs. Section 5 discusses issues of distributional equity raised by the taxation of road transport. Section 6 considers a number of specific policy options, identifying the key issues involved in selecting an appropriate balance between different motor fuel taxes, or between "fixed" and "variable" charges on motor vehicles. Section 7 discusses the issue of "earmarking" which is of particular importance in this context. Should road transport taxes be assigned to a "road fund" or to the general budget, and if the road fund approach is to be adopted, what implications should it have for the level and pattern of taxation? Section 8 draws some conclusions.
Reference: Stephen Smith (2006) "Taxes on Road Transport", in Sijbren Cnossen (ed) (2006) Excise Tax Policy and Administration in Southern African Countries. pp 117-150. Pretoria: University of South Africa Press.