Sharon Keogan (Independent)
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I congratulate the Minister of State on her elevation to office.

In 2019, the Houses of the Oireachtas passed the usual Finance Act, allowing for regulations of taxation, stamp duties and duties relating to excise. Included in the Bill was section 6, on benefit-in-kind emissions-based calculations, which gave effect to a measure included in that year's budget relating to benefit-in-kind tax on employers providing vehicles. The effect of the measure is as follows. From 1 January 2023, a new charging regime for employer-provided cars will take effect, and will be based on kilometres travelled with the CO2 emissions levels of the car. Also, the rate of benefit-in-kind tax on employer-provided vans will increase from 5% to 8% of the original market value of the van from 1 January 2023.

With a commencement date of four years off, I am sure it seemed a long way down the road, but here we are now and the tax hike signed into law prior to Covid is hitting people all over the country during a period of general global inflation and the Irish cost-of-living crisis. Average employees will see a reduction in their pay packet of approximately €300 per month, according to the chief executive of the Kildare Chamber of Commerce. One company driver, Ivan O'Sullivan, a medical representative who covers Northern Ireland and parts of Dublin and Leinster, drives hundreds of kilometres every day. He told RTÉ that his benefit-in-kind has trebled. "It is a huge hit for me financially. It is hundreds of euros a month, thousands a year", he said. Indeed, for many people who use a company car in lieu of a private vehicle, this four-year-old tax hike will all but wipe out any advantages received in this year's budget.

We have about 150,000 company cars in this country and many of these workers have no choice but to drive them. They have been penalised for not having a private automobile - a state of affairs which any critical-thinking climate advocate would realise is absurd. Of course, the reverse logic when it comes to CO2 reductions does not end there. The formula used to calculate the tax, based on kilometres travelled, results in the benefit-in-kind charge on a work vehicle actually dropping at higher mileage due to the thinking that the greater the distance travelled for business, the more the car benefits the company rather than its employee.

The Vehicle Leasing Association of Ireland has warned that it may be contrary to the climate action plan by making businesses move away from company cars to look at adopting an allowance method whereby employees could drive their own high-polluting second-hand cars rather than avail of the company's comparatively new more energy-efficient models. Vehicle leasing companies are reporting that some workers are seeking to hand back their company cars or buy them out so that they can use them as private cars and claim mileage instead.While many companies will transition to an electric fleet over time, at the moment, there is a shortage of electric and hybrid vehicles due to supply chain difficulties and electric vehicle, EV, battery technology. The charging infrastructure is not sufficiently advanced to make such vehicles a viable alternative for many workers. It is an absolute disaster between extra fuel costs and all the other costs that are part of everyday life. It is a real blow for anybody who has a company car.

What is the plan? Are we keeping this reverse logic tax hike, which was put in place four years ago when we had no idea of the state we were going to be in? Are we at least going to introduce some measure to cushion the blow for those users of company cars?

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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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.

Sharon Keogan (Independent)
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I thank the Minister of State very much. I appreciate the comprehensive answer. The issue was the lead-in period, however, which began four years ago. It was not on the radar of many companies. I only became aware of it around December when a number of people contacted me to tell me how much they were going to be out of pocket.

Do I have to look at other legislation or other budgetary measures the Government has delayed over a period of time that have serious consequences for individuals, particularly companies and employees within those companies? This has hit the employees quite hard. I am a little disappointed that there are no plans to review this in the context of the forthcoming budget. Is there anything that can be done in the budget to make matters easier? Is this something the Minister of State might look at?

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I thank the Senator. I recognise that when something was legislated for in the Finance Act four years ago, it can seem a bit remote. The purpose of it was to enable fleet planning by companies, not by employees. The latter would not perhaps have had the same familiarity with the provisions of the Finance Act as we might have understood their employers to have, particularly when it came to renewing leases. These are conversations that companies that are engaged in ongoing lease renewals should be having with suppliers. There is a disconnect between the employee who is actually paying this now and the fleet planning we might have hoped for and anticipated.

One of the aspects to look at is that budget 2022 extended the preferential BIK treatment for EVs to end in 2025 with a tapering mechanism on the vehicle value threshold. Therefore, the relief is being phased down incrementally from €50,000 in 2022 to €10,000 in 2025. That is to try to encourage early adaptation towards EVs by fleet planners, as opposed to employees, and to try to do that in the most expeditious way possible.

Sharon Keogan (Independent)
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It would be great if the infrastructure was there to support it. I thank the Minister of State.