60% tax on petrol gives Britain, France and Germany some of the highest pump prices worldwide. Some emerging economies benefit from 0% fuel tax, or even subsidies.

The major European economies of the UK, Germany and France have the highest cost of fuel among the major world economies, according to a new study by UHY, the international accountancy network.

UHY explains that the UK, France and Germany all levy taxes of at least 60%* on petrol, considerably more than other major developed economies such as the United States, Canada and Australia.

Taxes amount to 59% of the cost of diesel in the UK, which is the highest in any major economy. France levies 43% tax on diesel, while Germany levies 58%.

This means that the cost of filling the tank** of a Ford Transit van with diesel in the UK amounts to $184. In comparison, French and German consumers pay $146 and $158 respectively.

UHY says that as diesel is used in the majority of commercial vehicles, this heavy burden is borne primarily by businesses.**

In contrast, both of the world’s largest economies, the United States and China, have extremely low fuel taxes. The United States levies just 13% on petrol and 12% on diesel, whereas China levies no taxes at all on these fuels.

UHY says that while governments say that petrol taxes are important in cutting greenhouse gas emissions, the transport lobby and SMEs argue that they add costs for all businesses.

Even for Liquefied Petroleum Gas, a more environmentally-friendly alternative to petrol or diesel, the UK still levies taxes of 60%, the highest in the developed world by some distance. France levies an 11% tax on LPG, while Germany levies 33%. 

UHY adds that this study is a reminder that all advanced economies must makes continued efforts to maintain tight control on the levels of business taxation, especially as the recovery from recession starts to gather pace.

Ladislav Hornan, chairman of UHY, says: “Taxes on fuel are an area in which the major European economies place a bigger burden on businesses than any other countries, which could act as a brake on the speed of recovery from the recession.”

“While the British Government’s cuts to corporation tax are certainly popular with businesses, the 60% tax on petrol is still a considerable burden for them to carry, particularly as reclaiming the VAT element can be complex, especially for smaller businesses.”

“The United States is already quite a distance ahead of the UK, France and Germany in its economic recovery, and its lower levels of taxation in areas like fuel may well be helping to stimulate growth.”

“It’s important for Governments in major economies like the UK, France and Germany to balance the revenues they receive from taxing fuel with the potential for economic stimulation that a cut in fuel taxes would provide.”

“Reduced taxes on diesel would be particularly advantageous for fast-growing small and medium businesses that run fleets of commercial vehicles, especially in sectors like distribution and retail. These businesses can be key drivers of economic recovery.”

US federal fuel tax – unchanged for 20 years, but under pressure

UHY says that the United States levies a federal fuel tax of 18.4 and 24.4 cents per gallon on gasoline and diesel, which alongside state taxes on fuel consumption contribute to an average US fuel tax of 13% on gasoline and 12% on diesel.

This federal fuel tax has not risen in 20 years. In late 2013, a proposal was introduced in Congress to increase that fuel tax to 33.4 cents per gallon on gasoline and 42.8 cents per gallon on diesel.

Comments Scott Miller, Partner and National Petroleum Practice Leader of UHY Advisors in the US: “Increasing the federal fuel tax is a political challenge that few US politicians would be enthusiastic about. While some argue that a fuel tax increase is needed to fund transportation infrastructure, others maintain any tax increase would be a drag on the economy.  At the state level, with decreasing gas consumption and increasing infrastructure costs, many states are considering gas tax increases or other tax changes to make up for the lost gas tax revenue.”

Emerging economies have lighter fuel tax burden – and some even offer subsidies

UHY says that most emerging economies have considerably lower levels of taxation on fuel than developed economies.

Some countries such as China levy no tax at all on petrol or diesel, while Malaysia offers subsidies of 30% on petrol and 40% on diesel.

UHY says that fuel taxation has been a controversial subject in China in recent times, with the farming lobby pointing out the problems that potential fuel price increases may cause for the country’s agricultural industry.

UHY adds that the Malaysian fuel subsidies cost the Malaysian government an estimated $14 billion per year. The subsidies have also led to issues with the smuggling of fuel into neighbouring China and Indonesia, which have a much higher cost of fuel.

Comments Alvin Tee, Senior Partner of UHY in Malaysia: “Emerging market economies are much more focused on growth, and providing assistance to businesses through lower taxation and subsidies where necessary.”

“The Malaysian economy is one that levies low taxes on consumption in general, and focuses on direct taxation of businesses, such as through corporation tax, as the key generator of revenue.”

UHY says that the United Arab Emirates also falls into this group. The UAE levies no tax on petrol or diesel at point of consumption, though levies a special corporation tax on foreign oil companies operating in the country, which at an average of 55%, is higher than most countries’ corporation tax rates. 

Says David Burns, Partner UHY Saxena, UHY member in the UAE: “The United Arab Emirates has the advantage of being one of the most significant oil-producing countries in the world, which makes levying a tax on fuel unnecessary.  This is certainly a major benefit for both consumers and non-oil businesses as the country seeks to develop a more diverse economy.”

Filling the tank of a Ford Transit with diesel – proportion of cost made up of fuel cost and tax

Filling the tank of a Ford Transit with petrol – proportion of cost made up of fuel cost and tax

Filling the tank of a Ford Transit with LPG – proportion of cost made up of fuel cost and tax

*Tax rates include VAT, some or all of which may be reclaimed by businesses in some countries, including EU member states.

** Tank size: 80 litres for petrol and diesel, 72 litres for LPG.  

UHY strengthens presence in the Middle East as firm in Saudi Arabia joins the network.

Global accountancy network UHY extends its coverage within the Middle East region by appointing Abdul Jabber Certified Accountants and Consultants Office. The firm will be operating under the UHY branding as UHY Abdul Jabber Certified Accountants and Consultants Office.

Abdul Jabber Certified Accountants and Consultants Office, was established in 1992. The firm’s head office is based in Jeddah with a branch in Riyadh.  The firm provides accounting, audit, tax, consulting and specialised IT services for a portfolio of clients in the private and government sectors.

Managing partner of Abdul Jabber, Dr. ELsayed Elboussery says: “We have joined the UHY network for a number of reasons. We expect that being a member of UHY will strengthen our practice and local capabilities providing our current and prospective clients access to leading global assurance, accountancy and business advisors services globally. In addition, being part of the UHY global network underpins our commitment to deliver quality services, bring expert knowledge of US GAAP and IFRS, and elevate our offering to assist the needs of both our local and international clients.

Ladislav Hornan, chairman of UHY commented: “We are delighted Abdul Jabber Certified Accountants and Consultants Office has joined the UHY network extending our coverage and capabilities in the Arabian Peninsula, which plays a critical geopolitical role of the Middle East and the Arab World. As a leading producer of oil and natural gas, Saudi Arabia is keen to attract further foreign direct investment supported by the continued diversification efforts focusing on power generation, telecommunications, natural gas exploration, just to name a few. We strongly believe the firm is a very good fit for our network.”

‘Old’ world economies charge higher inheritance and estate taxes than the ‘new’ world

Stealth taxes make passing on a family home more expensive than handing on a cash sum

The UK and Ireland take the highest proportion of inheritance or estate taxes of any major world economies, according to a new study by UHY, the international accountancy network.   

Ireland would typically take 26%, and the UK 25.8% from the estate of an individual passing on an estate worth US$3m* to their heirs, well above the global average of 7.67%.  For UK individuals that have never been married, the amount of inheritance tax taken from their estate would be even higher at 32.9%.

The study also found that European countries generally levy the highest inheritance taxes of all, with EU countries in the study taking 14% tax on the inheritance of a property of US$3million, nearly twice as much as the global average of 7.67%.  However, on a lower value property worth US$350,000, the difference is narrower, with European countries taking on average 2.5% in inheritance or estate tax, compared to a global average of 1.9%.    

UHY explain that emerging economies have traditionally not imposed inheritance and estate taxes because inheritance taxes are sometimes seen as discouraging wealth creation and because many emerging market economies have tried to keep their tax systems relatively simple.   For example, China, India and Russia all have no inheritance taxes.

Several developed countries, including Australia, Israel and New Zealand, have chosen to abolish inheritance taxes in order to create simpler tax systems and encourage the creation of wealth, whether through investment or entrepreneurship.

Ladislav Hornan, chairman of UHY, says: “Many emerging economies are especially keen to encourage wealth creation, and very low, or no, inheritance tax is seen as an important way to do that.  Not only are individuals more incentivised to earn more in order to pass it on to the next generation, but inheritances are themselves often a crucial source of funding for new businesses, especially in countries where there is less bank finance available.” 

“In established European economies, by contrast, Governments are becoming increasingly reliant on the substantial income streams generated by inheritance tax.  It can also be seen as a way of creating tax revenues from ageing populations: retirees frequently have lower levels of taxable income, but substantial assets such as mortgage-free homes”

“Emerging markets economies, with their much more youthful populations, have no pressing demographic reason to need an inheritance tax.  Even as they become older and wealthier, they should resist the temptation to introduce them as they could act as a brake on future growth.”

Level of inheritance tax threshold crucial issue for middle class families

UHY explain that the level at which inheritance tax thresholds are set is a crucial issue for middle class families.  If thresholds are not adjusted in line with inflation, it can mean that taxes, that were originally designed to apply only to the very wealthy, start to affect a larger proportion of the population.

UHY note that in the USA, the 40% federal estate tax applies only to estates of over $5.34m, and so only affects those with substantial assets.  Moreover, the US has raised the threshold for paying the estate tax several times over the last decade, increasing it to its current level from$1,500,000 for deaths in 2004 – 2005. 

By contrast, in the UK, the inheritance tax threshold has been frozen at £325,000 (US$ 544,862) since 6 April 2009 and is expected to remain at the level until at least 5 April 2018.  This is actually below the average London house price of £409,881 (US$686,058), and not far above the UK average house price of £250,000 (US$418,450). 

In Japan, the Government has taken steps to lower the threshold at which inheritance taxes start to apply, with the result that more families are caught by the tax.

Ladislav Hornan, Chairman of UHY, comments, said: “Inheritance tax has become a big earner for the UK Treasury, and inevitably, as rocketing house prices push more and more people into its scope, the amount of tax planning going on is increasing.” 

“The Government of course recognises that most people would rather the taxman does not get his hands on their money, so there are specifically targeted investment reliefs from inheritance tax which encourage older people to continue to invest productively, rather than simply to spend their wealth, by making investments in unlisted trading company shares.” 

“In the UK, as in many other countries, there are gifting exemptions that allow individuals to pass on wealth while they are still alive, so that inheritance tax can be mitigated entirely if an individual makes gifts to their heirs at least seven years before their death.”

“In Japan, tax payers already make very extensive use of these exemptions, and the plans to lower the inheritance tax threshold there from next year has prompted a new wave of interest in the gifting rules.”

“Some would prefer developed economies like the UK and Japan to follow the example of Australia, where the system has been vastly simplified by the abolition of inheritance tax, or at least to start to wean themselves off the tax by increasing the threshold at which it is paid in a meaningful way, as has been the case in the USA.”

Rick David, Chief Operating Officer of UHY Advisors, member of UHY in the USA, said: “Americans regularly complain about estate taxes, but with the current high threshold for the federal taxes the great majority of estates will escape such taxation.    This provides a powerful incentive for middle class Americans to continue to invest and earn, even into late life, because they know they will be able to pass most of what they have onto their children and grandchildren.”

“State level taxes are another matter, and while a majority of the states do not impose an estate tax, many retirees consider the existence of such taxes when selecting a retirement location.  Certain states, such as Florida, increase their attractiveness when consideration of such taxes is part of their analysis.  With the anti-tax movement continuing to gain ground in the USA, we may well see more states weaken or scrap their estate taxes.” 

*Property price of £1.79million / EUR2.16m.  Calculations based on a passing on a home to two adult, non-dependent children.   Where taxes are levied on a state / local level as in USA, Brazil, Spain, Mexico and Canada, a national average has been used.   No special allowances such as Italian exemption for acquiring a first home apply.

 * In the US, 14 out of 50 states impose a state-level estate tax, ranging from 12% to 19%, with tax free allowances from $675,000 to a high of $5.25 Million. A federal estate tax applies from £5.3 million.