Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael) | Oireachtas source

I thank Senator Keogan for raising this issue. Of course, she is right. When this was introduced in 2019, it was part of the climate action plan and part of a climate focus on making a transition and bringing the benefit-in-kind, BIK, in line with the other vehicle taxes, namely, vehicle registration tax, VRT, and motor tax which, of course, are carbon-based. The Senator is also correct in identifying that there was a long lead-in time to try to allow for fleet planning. However, just because the Finance Bill said there is a long lead-in time it does not always mean that people have the opportunity to be fully aware of that or fully able to adapt to it, particularly during a pandemic.

The Senator is also right in stating that there was no possible way of foreseeing in 2019 the energy price crisis we have or the inflationary crisis we had post pandemic. The situation is very complex. I genuinely recognise that and that the timing of this, albeit that it was planned three or four years ago, is quite difficult. I will set out some of the rationale behind the decision-making originally.

As the Senator will be aware, and she has supported it on many occasions, Government policy is very firmly focused on the environmental rationale around company car taxation. As I said, the emissions-based approach has already been adopted for VRT and motor tax. The approach is being extended to company cars as per the 2021 climate action plan. A CO2-based BIK for company cars was legislated for three years ago, obviously, with the commencement date of 1 January 2023. From the beginning of this year, the amount taxable as BIK was determined as the car's original market value and the annual business kilometres driven, as highlighted by the Senator. The lead-in time between the legislation and that actually being applied was to send that advance signal to industry to adapt to this new system as typical lease renewal periods are approximately three years.

Until the changes brought in as part of the Finance Act 2019, Ireland's vehicle BIK regime was unusual in that there was no overall CO2 basis to it. This was despite the fact that the latter had been legislated for in 2008 but not implemented.

In some instances, as the Senator said, this new regime will provide for higher BIK rates, for example, with regard to above-average emissions and high-mileage cars. It should be noted, though, that to offset this, the taxable rates remain largely the same in the lower to mid-mileage ranges for the average lower-emission car. In addition, EVs benefit from a preferential rate of BIK, ranging from 9% to 22.5%, depending on mileage. Vehicles that run on fossil fuels are subject to higher BIK rates up to 37.5%. As we are aware, this new structure with CO2-based discounts and surcharges is designed to incentivise employers to provide employees with low-emission cars.

Under the new regime, the number of mileage bands has reduced from five to four. There were some arguments around the mileage bands in the new BIK structure, as though they were incentivising higher mileage to avail of lower rates, leading to higher levels of emissions, which appears to be a contradiction. The rationale behind the mileage bands is that, as the Senator said, the greater the business mileage, the more the car is a benefit to the company rather than to the employee and the more the car depreciates in value, the less of a benefit it is to the employee. Mileage bands also ensure that cars that are more integral to the conduct of business receive preferential tax treatment.

Better value for money for the taxpayer is achieved by curtailing the number of subsidies available and building an environmental rationale directly into the BIK system. That point is accepted across the board. The particular point the Senator raised was about the timing of its introduction at this moment and how that is impacting people having regard to the external circumstances. I understand and have a lot of sympathy for that. However, the purpose and rational was to bring the taxation around company cars into line with our own other taxation measures on a carbon basis and also with those right across Europe, which also have carbon-based BIK ratings.