Wednesday, 20 October 2021
Saincheisteanna Tráthúla - Topical Issue Debate
I have been in discussion with fuel merchants in my constituency and beyond who are being adversely affected by fuel smuggling from the North. The fuel merchants I have spoken to employ people. They pay PRSI and their taxes, including carbon tax and VAT. They also enforce the smokeless fuel laws. However, they cannot compete with the selling of smoky fuel from the North, mainly due to the continually rising carbon taxes. The fuel merchants I have spoken to broadly welcome the recent announcement by the Minister for the Environment, Climate and Communications, Deputy Eamon Ryan, to introduce a nationwide ban on smoky coal from next year and implement regulations designed to curb air pollution and its impact on public health. The proposed legislation will see smoke emission rates for manufactured solid fuel coal and coal-based products reduced and permitted sulphur content also reduced over time.
In order for these laws to be effective, the widespread selling of fuels mislabelled as low smoke has to be stopped. In addition, the 100,000 tonnes of coal coming in from the North every year cannot be permitted to continue. This coal has a retail value of approximately €56 million per annum. The main reason this is happening is that solid fuel in the North has a VAT rate of 5% compared with the 13.5% rate applied in the rest of Ireland. Also in the North, carbon tax is 0% whereas at present in the South the carbon tax on 1 tonne of coal is €87. This is set to increase to €107 per tonne next year and €126 per tonne the year after that, with further annual increases until 2030.
Based on the current rate of carbon tax, the €56 million worth of smuggled coal per annum represents a loss in VAT of more than €7.5 million and a loss in carbon tax of €8.7 million. This is a total of more than €16 million lost to the State. It also represents a loss of almost €40 million to the retailers. Based on the carbon tax rate from 2021 to 2025, if this continues the State will incur a further loss of €130 million and the loss to the retailers will be €188 million.
The issue is that there is little or no enforcement on the sale of fuel. There is no checking of mislabelling of goods. There are no efforts to curtail smuggling. The proposed nationwide ban on smoky coal is being introduced to improve our air quality. Without a dedicated task force to look at this issue and enforce the proper labelling of goods and the sale of smokeless fuel only, our air quality will not improve and, therefore, the health of our people will continue to be impacted negatively. There needs to be more education for the consumer on the health and environmental impact of smoky coal. There are also need to be fines for merchants caught trading in smoky coal and mislabelling products.
What we have is a significant loss of revenue to the State in VAT and carbon taxes. We have fuel retailers struggling to try to run legitimate businesses. They pay their taxes, pay wages to employees and pay PRSI. They are seeing their businesses going down the Swanee. It means that reaching our carbon targets becomes more difficult. It is contrary to the Government's objectives of the clean air strategy. The findings of the Ricardo report, which estimates the cost of burning smoky coal at €722 million, continue to apply. There needs to be proper monitoring and enforcement of the rules on the sale of solid fuel.
I thank the Deputy for raising this matter.
Solid fuel, that is, coal and peat, is liable to excise duty in the State in the form of the solid fuel carbon tax. The solid fuel carbon tax is a national excise and applies at different rates to four categories of solid fuel, including coal, peat briquettes, milled peat and other peat. The solid fuel carbon tax rate is €33.50 per tonne of carbon dioxide emitted.
Liability to solid fuel carbon tax arises when solid fuel is first supplied in the State. As solid fuels are not covered by the EU control and movement regime, there are no barriers or controls on solid fuels moving between member states and Northern Ireland. The movement of solid fuel across the Border into the State from Northern Ireland does not generate a liability to solid fuel carbon tax, nor does the physical presence of solid fuel in the State. It is not until solid fuel is first supplied within the State that solid fuel carbon tax becomes liable.
If solid fuel suppliers based in the State sources some or all of their solid fuel supplies from outside the State, they will be accountable for solid fuel carbon tax when they make first supplies in the State and must register with Revenue to account for and pay solid fuel carbon tax. If suppliers based outside the State bring solid fuel into the State for supply direct to consumers, they must register with Revenue for the solid fuel carbon tax. I am advised by Revenue that the majority of registered suppliers are importers or wholesalers and producers, and approximately 5% of those registered for solid fuel carbon tax are based in Northern Ireland. It is important to note that where a private individual travels to Northern Ireland to purchase solid fuel for personal use, no solid fuel carbon tax is payable provided the private individual accompanies the fuel back into the State.
With regard to VAT, under the terms of the protocol on Ireland and Northern Ireland, transactions involving the movement of goods between Ireland and Northern Ireland in either direction continue to be treated as intra-Community transactions and are subject to EU VAT rules. These rules apply only to business to business supplies of goods to or from Northern Ireland to taxable persons in Ireland and other EU member states. The goods, including fuel products, are supplied at the zero rate of VAT and the taxable person in receipt of those goods self-accounts for VAT on a reverse-charge basis and, if applicable, takes a simultaneous VAT deduction in the next VAT return. The onward distribution and sale of a fuel product to a consumer in the State is subject to the normal VAT rules and the Irish supplier is liable to account for VAT, currently the reduced rate of 13.5%, on the supply. The consideration for a supply of goods or services is defined in EU VAT law and consists of everything which the supplier is entitled to receive in return for goods or services supplied, including taxes, duties, levies and charges and excluding the VAT.
Therefore, VAT is chargeable on the solid fuel carbon tax element of fuel products.
Where a business in Northern Ireland sells goods and arranges the transport of those goods to a consumer in Ireland, such sales of fuel products are referred to as intra-community distance sales. Intra-community distance sales of fuel products from Northern Ireland to a consumer in a member state are subject to VAT in the member state of destination of the supply, which would be Ireland if the customer is based in the State. In such cases, the supplier of those goods is required to register, subject to a threshold, in the State and to account for VAT on those supplies.
I am not talking about somebody who gets into their car, drives across the Border and buys a few bags of coal. Nobody is concerned about that. That cross-Border trade has happened over the years. We are talking about advertisements, mainly on social media, inviting people to ring a number, pay online and get even tonnes of fuel delivered to their door on a pallet. No carbon tax or VAT is paid on this. The prices being charged indicate it could not be because they greatly undercut those the merchants here have to charge in order to pay carbon tax and VAT.
This has been going on for years and will only get worse as the price of fuel rises due to the increase in carbon tax. Something has to be done. We are fooling ourselves if we think we are helping the environment by ignoring this. Would it not be possible to give the Revenue Commissioners additional powers and resources to track and trace all solid fuel supplied on the Irish market? Some of that which is coming in is not what it is advertised to be and it needs to be checked.
I suggest also providing a dedicated freephone number to allow customers and retailers to report suspected carbon tax and VAT evasion. Fuel merchants frequently do not know who they are supposed to report this issue to and are passed from pillar to post as to whose responsibility it is, and nothing is done about it. There has to be an increase in the penalties associated with non-payment of solid fuel carbon tax. Moreover, there should be incentives to encourage customers to switch from using carbon-intensive solid fuel to low-carbon, low-smoke solid fuel.
It is the poorest people in society who pay carbon tax because they cannot afford to bulk-buy fuel and have it delivered across the Border. They are the people who buy a couple of bags of fuel and pay carbon tax, yet they are the people who can least afford to do so.
The points the Deputy made are very valid. Officials from Revenue will be watching this debate and will take note of what she said about social media and other forms of advertising campaigns that are impacting on fuel suppliers in Cavan-Monaghan, the part of the country the Deputy represents, which are impacting on suppliers on this side of the Border. Her points are fair ones. Revenue carries out enforcement operations and cross-Border multi-agency enforcement operations. It does this in conjunction with local authorities. These operations have been impacted by Covid and there have been fewer of them but, as we all know, we are, thankfully, moving into a better space in that regard. Compliance-checking will have to be ramped up.
On reporting, the Deputy mentioned a freephone number. As I understand it, a service that allows people to report issues to Revenue is available in any regard, that is, not one dedicated specifically to the issue the Deputy raised but to report any issues relating to tax evasion or non-compliance. It is open to anybody. Anyone anywhere can report an issue to Revenue, as the Deputy is encouraging people to do.
The points the Deputy raised are legitimate and valid. The feedback from this debate will go to Revenue and it will continue to monitor and seek to enforce compliance.