Dáil debates

Wednesday, 27 April 2022

Financial Resolution No. 2: Mineral Oils Tax

 

7:27 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank all of those who contributed to what was a good, strong and robust debate in the last hour or so. I want to summarise and conclude in respect of the two motions before the House, one of which deals with VAT and the other with excise duties.

The purpose of the first financial resolution is to reduce VAT on gas and electricity from 13.5% to 9%. This is possible because, as a result of the revised EU VAT directive, gas and electricity are now classified at reduced rates, in other words, they are no longer subject to the standard rate. This means the Government has the flexibility to reduce both of these services to the lowest reduced rate in Ireland, which is 9%. Other fuels, including kerosene, still fall under the standard VAT rate at EU level and, in an Irish context, this means the 23% rate. However, because such fuels were subject to a 13.5% rate at the time the VAT directive was put in place, Ireland was allowed to maintain this lower level under section 118 of that directive. This is known as a parked rate. Under EU law, the lowest this can be reduced to is 12%.

If the Government were to reduce kerosene to 12%, the saving would be very small for a person buying 1,000 l of oil but there would be a considerable additional cost to the Exchequer. That is because we would also have to reduce all other areas currently subject to the 13.5% rate to this level as we are only allowed to have two reduced VAT rates under EU law. The 13.5% currently applies to about 25% of all economic activity and as well as fuel use for heat and lighting, it also includes construction, housing, labour intensive services and general repairs and maintenance. It would cost in the region of €216 million between now and the end of October, approximately a six-month period. It is not being proposed but this is the most that could be done in regard to VAT on kerosene and that is the outer limit if it is all done and the 12% rate applied. In summary, the Sinn Féin proposal to reduce kerosene to 9% would be contrary to EU law and is likely to lead to an infringement. Even if the EU were to facilitate such a proposal, which is highly unlikely, a difficulty with that would be that once normality was restored, we would be required to revert to the standard rate of 23%, that is, we would lose our right to use the parked rate of 13.5% and this would have long-term cost implications for customers and the people of Ireland, even after the current energy crisis was over.

I want to refer briefly to excise duties. Last month, the Government brought forward a financial resolution to the Dáil providing for excise duty decreases on mineral oil tax with effect from 10 March. This provided for a 20 cent reduction in the excise rate for petrol and a 15 cent reduction for auto diesel, with a 2 cent reduction for the excise on marked gas oil known as green diesel. These measures were VAT-inclusive and were set to last until 31 August 2022. The estimated cost of this is €320 million. The purpose of this financial resolution is to extend the excise duty decreases until 11 October 2022, which is budget day.

The financial resolution also provides for a further reduction in the excise rate on marked gas oil, which amounts to a VAT-inclusive reduction of 3 cent, effective from 1 May to 11 October. This excise reduction extension and the further reduction in the rate applied to marked gas oil will have a cost estimated at approximately €97 million, made up of €80 million for the extension which I mentioned and €17 million for the change in the marked gas oil.

Deputy Doherty put forward four amendments in respect of these resolutions which I dealt with extensively during my earlier contribution.

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