Because a fuel levy is a flat-rate tax, the fuel levy collects the same amount of money per gallon whether gas prices rise or fall. A fuel sales tax is a percentage of the fuel price, so it changes if the price per gallon changes. A fuel levy is also known as a fuel excise tax.
A government may prefer a sales tax on fuel because it will not need to pass a new fuel levy, which may anger voters, to increase the revenue it collects if gas prices rise. The fuel levy does maintain the government's level of tax revenue if fuel prices fall, which is important if the levy directly funds a project, such as a bridge that will take several years to build.
A fuel levy can be used to convince fuel users to switch to a different source of energy. A government can tax gasoline and other petroleum-based products, while not charging a levy, or charging a lower levy, on biodiesel and other fuels made from renewable sources. An extra fuel levy may apply to fuel types that cause more pollution, to cover cleanup costs.
If a government assesses a fuel levy, it increases the cost of a gallon of gasoline at the pump. Gas stations normally include all taxes in the price per gallon that they quote, so a driver would notice that gas increased from $3.00 per gallon to $3.20 per gallon, for example, but the gas station usually doesn't post a notice of the fuel levy or list it separately on the receipt.
A fuel levy may be matched to the vehicles that use a certain type of fuel. The government may charge a levy on gasoline and diesel fuel because it needs funds to build a new highway or repair existing roads. This levy wouldn't apply to other fuels such as propane and kerosene that aren't used to power vehicles on the roads. Voters may approve a fuel levy that specifies that the money that the fuel levy collects must be used on a specific highway construction project.