Why a new e-vehicle taxation regime in Belgium is urgent

To address the declining fuel tax revenues, the Belgian government needs to consider a new approach to usage-based taxation.

The global automotive landscape is undergoing a transformative shift towards electric vehicles (EVs), and the implications for government revenue are becoming increasingly clear. With a growing number of countries embracing electric mobility, the Belgian government, like many others, faces a significant challenge in sustaining its fuel tax revenues.

With two million electric cars expected to be on Belgian roads by 2030, the government could witness a staggering reduction of $1.6 billion in fuel tax revenues, representing a significant challenge to the national economy. There is an urgent need for governments to re-think the existing fuel tax mechanisms.
 

Rethinking the approach to vehicle taxation

The traditional model of fuel taxation, a cornerstone of government fiscal planning, is being disrupted by the electrification of transport. The shift to electric vehicles could result in a potential decline of $62 billion in fuel tax collections globally by 2030. It is estimated that the Belgian government could face a potential reduction of $965 in fuel tax revenues per electric car by the year 2030.

Fuel taxes are an integral part of the government's taxation system and the income it generates. But EVs will inevitably change the status quo and will require a rethink of the approach to vehicle taxation. The looming crisis in fuel tax revenues presents an urgent need for governments to consider a new approach to usage-based taxation to preserve income streams.

Multiple alternative and complementary vehicle taxation mechanisms are available for governments to manage the reduction in revenues, such as:

• Distance-Based Charging: applying a per-mile charge on the total distance traveled.
• Ownership Taxes: levying a higher VAT or GST on EV purchases.
• Annual Flat Fee on EVs: charging EV drivers a flat annual fee for road usage.
• Taxes on Electricity Sales: levying higher taxes on electricity sales.
• Higher Fuel Taxes: increasing fuel taxes on gasoline or diesel purchases.
   

Distance-based charging

Based on our analysis, distance-based charging appears to be a promising approach. By applying a per-mile charge, governments can mitigate the reduction in fuel tax collections while adhering to a ’user pays‘ principle. The introduction of distance-based charging would mitigate the reduction in fuel tax collections, while also providing governments an opportunity to optimize the overall transportation system.

However, there are some challenges associated with distance-based charging, including those related to technology for recording road usage. Enhancing the Distance–based charging approach with aspects of Time-, Place-, and Load-based charging could be the way forward to tackle such challenges.

Call to action for governments

The time to act is now. As the world accelerates towards electric mobility, governments, including the Belgian government, must proactively address the challenges posed by declining fuel tax revenues and develop innovative solutions to sustain their financial stability and meet evolving transportation and environmental objectives. This can be done by:

1. Track the uptake of EVs

Monitor the adoption rates of electric vehicles and anticipate a potential terminal decline in fuel tax revenues.

2. Plan for a fuel tax replacement mechanism

Consider broader transport policy goals, public acceptance, implementation processes, and available technologies when developing a new taxation system.

3. Shift to energy content-based taxation

Transition from traditional volume-based taxation to a forthcoming energy content-based mechanism.

4. Embrace the 'user pays' principle

Link charges to the use of the road network, ensuring fair contributions from road users.

5. Fairly frame road usage costs

Explore options to equitably frame the cost of road usage in the form of taxes or fees.

6. Anticipate user behavior

Evaluate the potential impact of future taxation approaches on EV adoption and other transport policy goals by understanding and anticipating user behavior.

7. Engage all stakeholders

Involve all relevant stakeholders and deliberate on multiple perspectives to move forward in a coherent and informed manner.