Fergus O'Dowd (Louth, Fine Gael)

I thank Deputy Phelan and Deputy Dowds for their views and proposals. I will bring them to the attention of the Minister.

I am pleased to take this opportunity to speak on behalf of the Minister for Finance on the subject of fuel laundering. This form of tax evasion is a matter the Government takes very seriously, particularly given the current economic climate. I am informed by the Revenue Commissioners that the predominant illicit activity in the mineral oil area in Northern Ireland and the Republic is the laundering of marked diesel. In both jurisdictions the respective difference in excise rates between marked or rebated and normal diesel offers a considerable incentive for oil laundering and this illicit activity poses a serious threat to the exchequers, economies and environment on both sides of the Border.

Marked gas oil or marked diesel is subject in the Republic to mineral oil tax at the rebated rate of €88.66 per 1,000 litres, on condition that it is used for particular purposes such as home heating or as a propellant in agricultural and off-road vehicles. Its use in ordinary road vehicles is strictly prohibited and there are heavy penalties for anyone convicted of such an offence. The rate for normal auto diesel is €465.70 per 1,000 litres. In addition, marked gas oil is subject to a lower VAT rate of 13.5%. The resulting total tax differential is around 50 cent per litre, which is very significant.

The Revenue Commissioners, who are responsible in the Republic for the collection of mineral oil tax and the control of mineral oils, are very aware of the threat posed by laundered fuel and undertake a multi-faceted programme of enforcement action to counter it. It will be appreciated that it is not possible to accurately estimate the loss to national exchequers either in the Republic or in Northern Ireland from individual activities within the shadow economy but obviously it is significant. It is important to note that marked gas oil usage is not unique to farmers. It has a wide range of legitimate uses, such as in commercial and domestic heating systems, ships, fishing boats, trains, certain vehicles designed for specific off-road use, machinery used mainly in the agricultural and construction sector and electricity generators.

One of the alternative methods envisaged by the Deputies involves a move towards a system of repayment whereby certain users would be given refunds relating to non-auto use of mineral oils. However, it is not clear that this is a feasible option. It would involve the establishment of a very extensive repayment system which would give rise to a very significant administrative burden for the Revenue Commissioners, oil traders and users and would pose significant cash-flow implications for those who currently use marked gas oil. Repayment regimes are vulnerable to abuse and liable to be exploited by criminal elements, such as those currently involved in fuel laundering. A repayment scheme would not eliminate the incentive to divert rebated oil to high-rate auto use and could give rise to large-scale bogus claims. Illicit use would be difficult to detect and almost impossible to prove. Even if the oil that benefits from repayment is marked, it can still be laundered as at present. In addition, oil can be laundered from UK marked gas oil. Therefore, a move away from marking could only be considered if the UK were to do likewise.

For these reasons, it is not clear that a repayment system would be less susceptible to fraud. The Revenue Commissioners' intention is to continue to ensure that controls relating to the sale and distribution of oils and enforcement action in combating illegal oil laundering activity are as effective as possible. There has been ongoing extensive enforcement action, which has led to the detection of oil laundries and the prosecution of the individuals and companies involved. As the Deputies are aware, substantial action has been taken by the Garda and law enforcement agencies north and south of the Border in the recent past.

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