Article Sweden: Parliament Adopts Reduced Tax on Diesel and Gas

On March 24, 2022, the Swedish parliament voted 274–14 to adopt a reduced energy tax on diesel and gasoline, with only members of the Green Party and one unaffiliated member opposing. According to the proposal the government had presented to the parliament, the energy tax reduction of 0.4 Swedish kronor (SEK) (about US$0.04) per liter of diesel or gasoline would mean a reduction of SEK0.5 (about US$0.06) per liter for consumers at the pump. The new reduced tax will go into effect on May 1, 2022.

The move comes following a spike in gasoline and diesel prices in Sweden, with prices on diesel exceeding SEK27 per liter (about US$10.90 per gallon), reportedly the highest in the world, in February 2022.

Under Swedish law, diesel and gasoline are subject to three types of taxes: a carbon dioxide tax, an energy tax, and a value-added tax (VAT). (2 kap. 1 § Lag om skatt på energi (SFS 1994:1776); 7 kap. 1 § Mervärdesskattelag (SFS 1994:200).) The VAT is added to the combined value of the diesel or gasoline product, the carbon dioxide tax, and the energy tax. Thus, unusually, the VAT is also paid on the carbon dioxide tax and the energy tax. The VAT is currently 25% for diesel and gasoline, including the carbon dioxide and energy tax amounts, making the total tax burden on these products about 38%, or approximately SEK11 per liter (about US$4.40 per gallon).

Moreover, diesel and gasoline producers must, by law, reduce diesel and gasoline carbon emissions by including biofuel in their products, thereby reducing the percentage of gasoline. This obligation is known as a “reduction duty” (reduktionsplikt). For gasoline the amount of biofuel that must be included to the gasoline’is currently 7.8%, and for diesel, 30.5%. (5 § Lag om reduktion av växthusgasutsläpp från vissa fossila drivmedel (SFS 2017:1201).)

In addition to targeting diesel and gasoline prices, the tax reduction would also apply to jet fuel, aviation kerosene, and certain crude oils with high sulfur content, as defined in the Tax on Energy Act. (2 kap. 1 § 1, 2, 3b & 7 Lagen om skatt pa energi (LSE) (SFS 1994:1776).) Singling out diesel and gasoline for tax reductions would risk violating state subsidy rules under European Union legislation.

In a separate but related measure, the parliament also voted to allow businesses that have suffered financially due to the high diesel and gasoline prices during the pandemic to take advantage of the reduced taxation on diesel and gas. 

Criticism of the Tax Reduction Proposal

Despite the large majority voting in favor of the tax reduction, the proposal received considerable criticism. During the debate preceding the vote, representatives from several parties of the parliament argued that the tax reduction did not do enough to ease the financial burden associated with the high diesel and gasoline prices. Reportedly, a majority of the parties in parliament support a SEK5 (about US$0.53) reduction in the energy tax for diesel and a SEK4 (about US$0.43) reduction for gas. Moreover, some have also suggested that the VAT should be entirely eliminated for diesel and gas.

The Swedish government has suggested additional measures to reduce the price of diesel and gasoline. For example, the government is planning to delay enforcement of the reduktionsplikt that increases the amount of renewable energy that, by law, must be added to diesel and gasoline. (Lag om reduktion av växthusgasutsläpp från vissa fossila drivmedel (SFS 2017:1201).) The amount of the reduktionplikt would remain at the same level in 2023 as in 2022, but the new reduktionplikt levels for 2024, currently planned at 12.5% for gas and 40% for diesel, would remain on schedule, as would each annual increase up to the final requirement of 28% for gas and 66% for diesel by 2030.