The Government Confirms the End of the Tax Advantage of Diesel

Finance General News
Taxes will increase for diesel
Taxes will increase for diesel
The increase in taxation on gas oil will be spread over five years. – Philippe Huguen AFP

The taxation of diesel will increase by one cent per litre from 2016 …

After years of heated debate, the government decided on Wednesday to start from next year to eliminate the tax advantage enjoyed by diesel fuel compared to petrol.  Matignon has announced “the principle of reconciliation in 5 years between the price of diesel and that of petrol,” as was advocated last week the Minister of Ecology and Energy Segolene Royal.

A cent per litre

Specifically, starting next year, the taxation of the preferred fuel of the French will increase by one cent per litre, and a further increase of one cent will be held in 2017, while that of petrol will be reduced by the same amount during the same period.  The government intends to end the “favourable tax treatment” which historically has diesel in France, “with a lower VAT tax of nearly 20 cents per litre compared to petrol.”

According to Matignon, this difference “induces a massive diesel fleet, which raises a legitimate concern of many French as to its impact on air quality.”Therefore, the government has decided to propose to Parliament to close this gap (…) by establishing the principle of a rapprochement in 5 years between the price of diesel and that of  petrol,” said Matignon after an arbitration meeting that brought together Manuel Valls, Segolene Royal, Emmanuel Macron (Economy Minister) and Michel Sapin (Finance).

80% of the fuel

Currently, diesel is about 80% of fuel volumes sold in mainland France and 55.7% in purchases of specific new cars. The latter figure is, however, declined in recent years, recurring debate on background concerning the toxicity of emissions and tougher standards. Diesel engines still accounted for 64% of registrations in 2014 and 77.3% in 2008.

To sweeten the pill of the increase of taxation on diesel, the government promises that he “will use this recipe to fund relief to modest local tax payers, particularly pensioners, according to its objectives of social justice, shared by the parliamentary majority.  “An announcement to the Assembly soon followed in the evening by the vote of a socialist amendment to that effect in the draft budget 2016.  This additional gesture for modest households is expected to be nearly 250 million euros.

Bonus for Conversion

In addition, the government will “reinforce the Bonus” of replacing old diesel vehicles, introduced this year to push the owners to replace them by expanding its base to models of more than 10 years and doubling the amount of 500 euros to 1,000 euros.

Also, Segolene Royal has said that the bonus for switching to an electric vehicle, which is 10,000 euros in exchange for the abandonment of a diesel vehicle over 15 years, will be extended to diesel vehicles over 10 years.

“We will give the bonus of 10,000 euros for the purchase of an electric vehicle in exchange for the abandonment of an old diesel vehicle over 10 years instead of 15 years now,” said the Minister Ecology and Energy.

While the outbreak in September of the rigged diesel engine scandal by Volkswagen, galvanized opponents of diesel and relaunched the debate on this type of engine, several Government members expressed support to an alignment of taxation of the two fuels, while stressing the importance of doing so gradually so as not to destabilize the country’s automakers.

The Green MP Denis Baupin welcomed in a statement “a great step forward for the ecology and public health”, emphasizing that the decision was claimed by his camp since “many years.”

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