Fuel Tax Revenue Simulator
Portugal taxes petrol, diesel, LPG, fuel oil, electricity, natural gas and other energy products through the ISP (Imposto sobre os Produtos Petrolíferos e Energéticos). Each rate has an energy component and a carbon component, the CO2 surcharge, and VAT comes on top. This simulator estimates how a change in those rates changes tax revenue across 18 products, letting consumption respond to price.
How the revenue is built
For each product, the tax is the rate times the litres, kilograms or megawatt-hours sold, less any per-unit rebate. The model adds the VAT charged on the tax, net of the VAT that firms deduct. When a rate changes, part of the change reaches the final price, and consumption responds to the new price. In symbols:
Revenue = U × (t − r) × (1 + v × (1 − d))
U = U0 × (1 + η × ρ × Δt / p + s)
- U is the quantity in the rate’s unit: litres for petrol, diesel and jet fuel; kilograms for LPG, fuel oil, coke and naphtha; megawatt-hours for electricity and natural gas.
- t is the ISP rate, energy plus carbon component, and r a per-unit rebate, as on coloured farm diesel, butane, low-sulphur fuel oil and electricity.
- v is the VAT rate and d the share of that VAT firms deduct, as for road diesel and autogas.
- η is the own-price elasticity of demand and ρ the pass-through, the share of a tax change that reaches the price p. s is any change in consumption for other reasons.
How to use it
Start from one of the three scenarios, or build your own: choose a product or a group, what to change and by how much, and press Apply. Changes to different products or taxes combine; applying a change again replaces the earlier one. Besides a change in cents, you can change a rate by a percentage, set it to a level, cut it to the EU minimum, set the CO2 surcharge from a carbon price in euros per tonne (56.246 €/t today), or change a rebate.
Hit a revenue target finds the setting of one lever that brings the total change to a target you set, keeping your other changes: for example, the carbon price on petrol and road diesel that pays for a cut on farm diesel (a target of 0, revenue neutral), or the cut in diesel that costs €200 million.
The result shows the change in ISP, in VAT and in total revenue over a full year, and:
- Where the change in ISP comes from: the new rate on the old quantities, against the response of consumption.
- Cross-border refuelling: for road diesel, the litres that move to or from Spain, calibrated on Teixidó, Palencia-González, Labeaga and Labandeira (2024).
- Revenue by month: the first year when the change starts mid-year, since consumption is seasonal.
- Revenue over five years: with the change phased in over up to five years and ISP rates indexed by a percentage each year, while consumption follows the model’s trend by product.
- Revenue by product, and warnings when a rate falls below the EU minimum (Directive 2003/96/EC) or below a rebate.
Under Assumptions by product you can change any product’s quantity, price, elasticity or pass-through.
What it leaves out
- Switching between fuels: each product responds only to its own price.
- VAT on the rest of the price: the model counts only the VAT on the tax, and a change in the VAT rate does not change consumption. The VAT option is therefore not a VAT simulator.
- Effects on other taxes, and inflation: the five-year view compares indexed rates with frozen ones at today’s prices.