42. The second argument cited by the Commission
in its case for a single rate of excise duty on fuel is that tank
tourism prompted by differences in duty rates "leads to a
significant loss in budgetary resources for some Member States"that
is, those Member States with relatively high rates of excise duty.
Commissioner Bolkestein estimated that for the UK the revenue
loss from tank tourism is "at least 800 million per
year" (Q1). So, the issue here is relatively straightforward:
is there at present a problem of revenue losses for Member States
with relatively higher rates of fuel duty?
43. Intuitively, it is difficult to understand
why Member States with relatively higher rates should suffer a
net revenue loss from the current situation. Most trips,
including all purely domestic trips, are unaffected by leakages
from tank tourism: the higher tax rate is collected from a more
or less given tax base. Where leakages do occur, such as in international
trips, it is still the case that the narrower base is taxed at
the higher rate. Hence, the result of applying a lower rate would
be as follows:
· a loss
in revenues from applying the lower tax rate to all current payersalthough
this loss would be expected to be partially offset by an enlargement
of the tax base as a result of increased demand; and
· a gain
in revenues from the enlargement of the tax base as a result of
eliminating tank tourismalthough this gain would be expected
to be less than the current estimated loss, since the latter is
estimated relative to the current higher rate.
The outstanding question is: could the gain in revenues
arising from collecting taxes from some new payers (at
the new lower rate) offset the loss from collecting a lower rate
from all current payers?
44. The Government have done this calculation.
They estimated that implementing the harmonised rate proposed
by the Commission would lead to a net revenue loss to the UK of
£2 billion per annum. They calculated this figure
as follows (p 15):
· A reduction
in revenues of £2.8 billion per annum from applying
the lower tax rate to current payersoffset by a gain of
£0.3 billion per annum as a result of increased demand.
· A gain
in revenues of 0.5 billion per annum as a result of eliminating
tank tourism as well as smuggling and other forms of fraudbut
this gain is roughly half the current estimated loss of £1
billion per annum, since the latter is estimated relative
to the current higher rate of duty, which is roughly twice the
lower rate proposed by the Commission.
45. The Commission did not provide any argument
or evidence to suggest that the UK or other Member States with
relatively higher rates suffered net revenue losses as
a result of tank tourism and would enjoy net revenue gains
as a result of the introduction of the Commission's proposed harmonised
46. It is nonetheless true that the absence of
a minimum rate could lead to significant revenue lossesnot
because States with relatively higher rates would suffer net revenue
losses from tank tourism but because a 'race to the bottom' would
put pressure on tax rates and hence on revenues.
47. It follows that the increase in minimum rates
via the Energy Tax Directiveif translated as it
should be into an increase in average ratesshould lead
to an improvement in revenues for the sum of Member States, even
if there is not a significant reduction in tank tourism.
Key conclusions on government
48. The Committee accepts the Government's
findings that the Commission's proposal would lead to a significant
net revenue loss to the UK and notes that the Commission has not
presented any evidence to the contrary.
49. The Committee accepts the need for minimum
rates of fuel duty to protect government revenues across the EU.
Moreover, we consider that the increase in minimum rates embodied
in the Energy Tax Directive should serve to enhance revenues for
the sum of Member States.