Tuesday, 27 September 2022
Financial Resolutions 2022 - Financial Resolution No. 1: Mineral Oil Tax
Financial Resolution No. 1 provides for an extension of the temporarily reduced rates of non-carbon mineral oil tax on petrol, diesel and marked gas oil, MGO, which Government provided for earlier this year. Temporary reductions in mineral oil tax on petrol diesel and MGO, implemented earlier this year, provided for VAT-inclusive per litre reductions of 21 cent, 16 cent and 5 cent on petrol, diesel and MGO respectively. These reductions were due to end on 12 October 2022. This financial resolution will extend the reduced rates for a further 20 weeks until 28 February 2023. The estimated cost of this extension is €281 million. I am sure the House will recognise that these are important measures in the context of the current energy crisis. These measures were first implemented in March and April of this year in light of the acute impact rising prices were having on citizens and business. Unfortunately, we remain in an inflationary period and it is necessary to extend these provisions until the end of February.
Financial Resolution No. 2 provides for the extension of the temporary reduction in VAT on gas and electricity from 13.5% to 9%. At present, gas and electricity have a 9% VAT rate applied on a temporary basis from 1 May to 31 October this year. This rate is due to revert to 13.5% on 1 November. This temporary reduction was one of the Government's responses to the current energy crisis and its impact on the cost of living. Given the scale and duration of the energy crisis, the Government has taken the decision to extend this temporary reduction in the VAT rate on gas and electricity. The VAT rate of 9% will now be extended from 1 November this year to 28 February 2023, covering the cold winter season. The background to this measure is that up to April of this year, Ireland has maintained a historical derogation in respect of the VAT rate on gas and electricity of 13.5%. This derogation was necessary because otherwise the standard rate of VAT of 23% would have applied. However, following lengthy negotiations, amendments to the VAT directive were agreed earlier this year with changes taking effect on 5 April 2022. Under this new agreement, annexe III of the VAT directive has been expanded to include gas and electricity. This means Ireland can apply a reduced rate of 9% to these products in line with other goods and services to which a reduced rate applies. The Government made its initial decision to avail of this flexibility from 1 May and is extending it to 28 February next year. In terms of Revenue impacts, the four-month extension of the reduced 9% VAT rate is estimated to cost €45 million.