The Esso gas station at Mt. Pleasant Road and Merton Street in Toronto.Fred Lum/The Globe and Mail
Since the U.S. and Israel attacked Iran three weeks ago, the energy market has been in turmoil, and Canadians have been feeling the impact at the gas pump. If oil prices remain at current levels for an extended period, it could push overall inflation up by one percentage point, according to an analysis by Trevor Tombe, a professor of economics at the University of Calgary.
Some U.S. states and countries across Europe have considered pausing or have temporarily paused fuel taxes for consumers. While Canada has not yet made any announcements to this effect, it’s a move that areas of the country have used to counter high gas prices in the past. Here’s everything you need to know about fuel taxes.
What determines the price of gas?
There are a few factors that determine the price of gas: supply and demand; supply-chain dynamics; the price of crude oil and the cost to refine it; and federal and provincial taxes.
In Canada, the average price of gasoline has jumped nearly 40 cents a litre since the start of the U.S.-Israel war on Iran.
Why is gas so expensive right now?
The main reason is a global supply shortage of oil. With the effective closure of the Strait of Hormuz, most delivery of gas and oil from the Middle East has been halted.
The Strait of Hormuz connects the Persian Gulf to the world’s oceans and is a critical path for the transport of oil. Qatar and the United Arab Emirates ship almost all their liquefied natural gas through the strait, accounting for 20 per cent of global supplies.
The war on Iran has shown how important the waterway is, especially for countries reliant on the crude such as China. On March 19, Canada along with countries including Britain, France, Germany, Italy, the Netherlands and Japan released a joint statement condemning Iran’s attacks and “the de facto closure of the Strait of Hormuz by Iranian forces.”
Canada, Japan, European allies willing to use ‘appropriate efforts’ to reopen Strait of Hormuz
“The effects of Iran’s actions will be felt by people in all parts of the world, especially the most vulnerable,” the statement said. “We express our readiness to contribute to appropriate efforts to ensure safe passage through the Strait. We welcome the commitment of nations who are engaging in preparatory planning.”
How is gas taxed in Canada?
Fuel in Canada is taxed multiple times. This includes a 10-cent-per-litre federal excise tax on gasoline (4 cents per litre for diesel), as well as a federal carbon pricing.
Provincial pricing varies, from, for example, 6.2 cents per litre in the Yukon to 27 cents per litre in Vancouver (some provinces, such as British Columbia, have region-specific pricing).
Fuel taxes are also subject to 5-per-cent federal GST, plus varying sales tax by province.
All in, taxes can range from about 30 to 50 cents a litre.
Where have fuel taxes been paused because of the war?
On March 20, Georgia became the first U.S. state to suspend their state fuel tax for 60 days. The bill, signed by governor Brian Kemp, temporarily waives the approximately 33-cents-per-gallon gasoline tax and 37-cents-per-gallon diesel tax.
Officials estimate Georgia will forgo US$360-million to US$400-million in fuel taxes, which translates to $5 or $6 per tank for a typical passenger vehicle.
European Union leaders are considering temporary measures to combat the rising gas and energy costs, including electricity tax cuts, lower grid fees and state support as short-term fixes.
Europe’s benchmark natural gas has risen roughly 71 per cent since the Iran war began. The continent is eyeing the replacement of fossil fuels with local low-carbon energy production to avoid volatile oil and gas prices in the long-term.
When has Canada paused the gas taxes?
In the past few years, some provinces have introduced temporary pauses on gas taxes. The Alberta government introduced pauses to the fuel tax starting in April, 2022, because of inflation, and extended the program until Jan. 1, 2024.
The Manitoba government had a similar “gas tax holiday” throughout 2024, suspending their 14-cents-per-litre fuel tax. The government brought back the tax in 2025 at 12.5 cents per litre.
Ontario also temporarily reduced gasoline taxes in 2022 by 5.7 cents a litre and diesel by 5.3 cents a litre to bring both down to 9 cents a litre. The province later made the reductions permanent.
With files from Paul Waldie, Eric Atkins, Jason Kirby, Mark Rendell, Reuters and The Associated Press