Taxes on Petroleum Products

Taxes on petroleum products are a significant source of revenue in most countries. In most of these countries, the policies put in place while setting tax rates are based on a product's elasticity measure. However, petroleum products have little elasticity on the market. This implies that a rise in tax will not have any effect on the number of petroleum products being used. It also means that such a surge will only become a burden to some the consumers. 

Therefore, the goal is to regulate taxes on petroleum products and make the end prices reasonable in all parts of the nation. 

Taxes should be based on the product depending on its long-term availability and not on its elasticity measure. The elasticity of prices measures the variation between demand and change in prices. Therefore, the best action is to change the orientation of taxes so that rates rise automatically with an increase in transportation cost. Increase in consumers on the road will lead to increase in gas tax rates which will reverse the long-term decline of petroleum. This may be facing rebuff by a lot of people at first, but the long-term vision is to build a better a policy on gas tax. 

I believe that this action will achieve the long-term goal. There will be different reactions in different areas. In some locations, it will be a burden to consumers, where prices had been low while in places where costs were unbearable, consumers will come to a relief. With regards to low-income households, enhancing tax credits will offset the bang of gas tax reforms. More significant changes in rates will have more significant effects if they persist over an extended period as opposed to being temporary distresses. Therefore, the question of whether it will work is easy. Yes, it will work, and I believe that it is the best long-term action to this issue of tax on petroleum products. 

References 

Building a Better Gas Tax – A New 50-State Report from ITEP. (n.d.). Retrieved from https://itep.org/bettergastax/