Thursday, 19 January 2023
Saincheisteanna Tráthúla - Topical Issue Debate
I too want to wish the Minister of State well in her new job. It is great to see her, I wish her well and I know she will do her best. I am delighted to be speaking to the Minister of State during her first Topical Issue and I know that she will sort it for me.
The most common benefit-in-kind tax is on a company car. Changes to tax came in this month and I have huge concerns about the increase in benefit-in-kind tax. It is being touted as a green initiative, but I have my doubts. This week I spoke with one of my constituents who is a sales representative for a Carlow business and who was on a 6% rate that increased to 12% in January. However, the annual mileage is also increasing by 4,000 km. That is hardly great for the environment and that is another issue that he felt strongly about. He spoke to his company about getting an electric vehicle, EV, but anything that would be close to suitable for doing the job costs approximately €80,000. Therefore, the original market value would increase the benefit-in-kind and that would cost the representative €1,610 net yearly during a time of huge inflation. He tells me this is just another bill that he cannot afford. He needs the vehicle to do his job. If this really was a green initiative, I wonder why we are seeking an increase in the mileage bracket and why electric cars are being dragged into it at all. Surely, we should be encouraging people to use electric cars.
While we are talking about electric cars, what is the status of the 2022 electric SPSV grant scheme, eSPSV22? It was paused for applications in April and was reopened in November. There was huge interest in it from taxi drivers and I spoke to many taxi drivers about it. Can the Minister of State tell me if this scheme is successful, given the high cost of electric cars? I have received many queries since then and many people are telling me that this will affect their jobs. It will particularly affect people who live in rural Ireland, such as in Carlow-Kilkenny, which is a rural constituency. In addition, considering the cost of living, every job is now crucial. This seems to have affected many more people than I had realised. I was not really aware of the scale of this scheme, but it is a huge scheme, and it has a huge effect on people. I ask that something is done and that we look at it. It needs to be addressed, considering that it is affecting so many people. Another man said to me, "I have a mortgage, I have small kids, my expenses are going up and up and at this rate with all of these extra taxes, I do not know how I am going to survive". I said that I would bring the issue before the Dáil as a Topical Issue. As this is the Minister of State’s first Topical Issue, I ask her to do the best she can.
I thank Deputy Murnane O'Connor for her comments. I will do everything I can to address all the points she has raised. Where I do not have the information, I will get it and come back to her with more detail. The important point to set out is that Government policy has focused on strengthening the environmental rationale behind all company car taxation. In the 2021 Climate Action Plan - and I am conscious that the Dáil was debating the 2023 plan the other day - the Government committed to introducing an emission-based taxation regime for company cars across the board.
Until the changes that were originally brought in as part of the Finance Act 2019, Ireland's vehicle benefit-in-kind regime was unusual in that there was no overall carbon dioxide basis in the regime. I know Deputy Murnane O’Connor is aware of the environmental reasons that underpin the other vehicle taxes that are in place, such as vehicle registration tax and motor tax, as well as their structure. In those taxes, higher-emission vehicles are subject to higher rates of tax. The measure coming into effect this month regarding vehicle benefit-in-kind extends that rationale, bringing it into step with other vehicle taxes, which are emission based.
In the Finance Act 2019, a CO2-based benefit-in-kind regime for company cars was introduced to commence on 1 January 2023. From the beginning of this year, the amount taxable as benefit-in-kind is still determined by the car's original market value and the annual business kilometres driven. Now, however, new CO2 emissions-based bands determine whether a standard, discounted or surcharged rate is also taxable. In certain instances, the new regime will provide for higher benefit-in-kind rates, for example, for above average emissions and higher-mileage cars. It should be noted that the taxable rates remain largely the same in the lower- to mid-mileage ranges for the average lower-emission car. Of course, EVs benefit from a preferential rate of benefit-in-kind, ranging from 9% to 22.5% depending on mileage, whereas fossil-fuel vehicles are subject to much higher benefit-in-kind rates, up to 37.5%. This new structure with CO2-based discounts and surcharges is designed to incentivise lower-emission cars.
In the new regime, the number of mileage bands has been reduced from five to four, and indeed the Deputy has raised that. I am aware that there are discussions around the mileage bands in the new benefit-in-kind structure, as they can be perceived as incentivising higher mileage to avail of the lower rates, leading to higher levels of emissions. The rationale behind the mileage bands is that the greater the business mileage, the more the car is a benefit to the company, rather than to its employee, and the more the car depreciates in value, the less of a benefit it is to the employee.
I believe that better value for money for the taxpayer is achieved by curtailing the number of subsidies available and building an environmental rationale directly into the benefit-in-kind regime. It was therefore determined that reforming the benefit-in-kind system to include emission bands provides for a more sustainable environmental rationale, rather than continuing the current system with exemptions for EVs. That brings the taxation system around company cars into step with other CO2-based motor taxes in Ireland as well as the long-established CO2-based vehicle benefit-in-kind regimes in other member states in the EU.
In addition to that and in light of the crucial Government commitments on climate change, budget 2022 extended the preferential benefit-in-kind treatment to EVs to end 2025 with a tapering mechanism on the vehicle value threshold. That means that the quantum of the relief is phased down from €50,000 in 2022, to €35,000 in 2023, €20,000 in 2024 and €10,000 in 2025. This exemption forms part of a broader series of generous measures to support the faster uptake of EVs by companies and facilitate their fleet planning. I can come back to this in my closing remarks, but it is important to say that this is an important part of our collective climate transition. The benefit-in-kind charging mechanism was introduced in legislation in 2019 and we have deliberately given that three-year lead-in time to allow for fleet planning as well as to allow for companies to transition to this measure.
I thank the Minister of State for her comprehensive report. I welcome this, and I am very climate aware, as we all are. We all want climate action, which is so important and is part of our duty going forward. However, the biggest issue in this particular case that I am dealing with is the closest car that he can get that will do the mileage. We live in rural Ireland, so when we talk about mileage we are talking about a lot of mileage. An EV that would sustain the mileage he needs would cost up to €80,000. As he said to me, he could not afford it. I do not think his company can afford it.
We need to get a balance. We know we have to have climate action and we are all promoting EVs. We also have to make them within the range of people who depend on a car for their living every day and who drive around the country, and for that car to be sustainable and climate friendly. This man is telling me that he is a young man with a young family and he cannot afford an EV. With this extra 12% tax from 1 January, he does not know where he stands at the moment. While I welcome this measure and, as I said, I am all for climate action, we need to find the balance. We do not want people in a predicament where they are losing money and have a lot of bills to pay when they are trying to play their part in climate action, like we all are. I think this needs to be looked at again and the price of EVs needs to be looked at. In years to come things will have changed because we will have a lot more of them. It is like years ago when the mobile phone came out first. Everybody was trying to get used to them and now everybody is able to have a mobile phone.
In years to come, there will be many more electric cars. We all welcome the money the Minister for Transport announced earlier this week for all these new stations where people will be able to plug in and charge their electric cars.
I ask that the Minister of State examine this issue further. It is a concern. I have had many phone calls about it. We need to find a balance here.
I know the Deputy's commitment to the climate agenda, having heard her raise it on many occasions in this House. This is about a transition model. Ireland is fully committed to meeting our climate goals and a key part of that involves the decarbonisation of transport and the large-scale transition to electric vehicles. The Deputy was quite right to highlight the announcement by the Government this week relating to the electric vehicle charging infrastructure strategy and the additional work being done in that regard.
There are challenges in this transition for people living in rural areas but also for people in urban areas, many of whom travel from Dublin to locations throughout Ireland to do various work as part of their company obligations. The Deputy was correct to highlight the EV charging network in that context. What is being attempted here is a transition away from the electric vehicle exemption, introduced in the Finance Act 2017. That has been extended to 2025, recognising the changes introduced in last year's budget. Significant discounts are available through that scheme and I can provide the Deputy with a note on that.
This matter was legislated for in 2019 and there was a signalling of the lead-in time. We have taken additional steps to extend other benefits to try to find that balance and transition that she mentioned. We must collectively make the necessary changes to move to a decarbonised transport system and this is a big part of that, bringing one of the vehicle taxation measures into line with our other vehicle taxation measures. It has had a significant lead-in time and I appreciate the practical difficulties it raises for the Deputy's constructions and those of other Deputies during the transition. If she would like me to look in more detail at a specific case, I will be more than happy to do so.