Seymour Crawford (Cavan-Monaghan, Fine Gael)
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Question 139: To ask the Minister for Finance his views on the possibility of providing a rebate for farmers and others who normally use, and are so entitled to do so, marked diesel; if, in that context, he agrees with Northern Ireland that only clear diesel would be available; his further views on whether this would automatically end the outrageous black market going on in washed diesel and simplify the whole system; and if he will make a statement on the matter. [12686/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Currently there exists a two-tier rate structure for diesel, which is taxed at €368.05 per 1,000 litres in respect of auto use and at €47.36 per 1,000 litres for other use. Currently, there are no plans to introduce a single rate for diesel with a rebate for use in agricultural or construction machinery.

The low rate diesel is marked with a chemical and dye, which gives it a green colour, and is known as marked gas oil, MGO. While it is used in agricultural machinery and tractors, it is also widely used for commercial and domestic central heating, and in off-road vehicles, special purpose vehicles, trains, boats and industrial and construction machinery.

Under the current system misuse of MGO in vehicles can be detected by means of a visual check of colour and a laboratory check for the chemical marker. There were 173 convictions obtained for marked oil offences in 2005 and fines totalling €175,704 were imposed. A further 1,326 offences were settled on payment of compromise penalties totalling €986,720.

Where the chemical marker and dye is illegally removed from MGO to facilitate illegal use as auto diesel, it can still be identified as MGO on the basis of its sulphur content, which is higher than that of auto-diesel. In 2005 a total of 127 detections of laundered oil were made, including 21 at retail and distribution outlets and 71 involving hauliers. Over 300,000 litres of fuel and five tankers were seized. Prosecutions in 2005 for laundered oil included eight filling stations, and ten hauliers are among those involved in 25 other cases reported for prosecution. Six convictions were obtained in 2005 and penalties totalling €5,950 and one custodial sentence, of 18 months suspended for three years, were imposed.

A change from the two-tier rate system supported by oil marking to a single rate system with repayment, could only be considered if the UK were to do likewise, as most laundered oil is produced from UK MGO — red diesel — which is cheaper than our MGO. I am not aware of any UK proposal to change to a single rate system. Even if the UK does make such a change, there are other serious drawbacks involved.

I am informed by the Revenue Commissioners that a repayment system would involve an enormous burden on their administration and audit resources, because of the very large number and diversity of MGO users. In addition, all users of low rate diesel would suffer the cash flow burden of a requirement to pay the full rate in the first instance, would have to keep records for Revenue audit purposes, maintain systems to claim repayments and suffer the delays consistent with an appropriate level of checking such claims. This would be a disproportionate impact on those who are tax compliant.

Furthermore, in Revenue's experience, unless they are micro-controlled, repayment regimes are inherently vulnerable to abuse and are liable to be exploited by criminal elements, such as those currently involved in oil laundering. A scheme on the lines suggested would be vulnerable to extensive fraud by opening new possibilities for diversion to high-rate auto use that would be extremely difficult or even impossible to detect and prosecute.

I wish to assure the Deputy that Revenue is continuing to take a vigorous approach to the problem of oil laundering and a major national project, which will target mineral oil retail outlets and large-scale users and focus on identifying the supply chain, is being put in place this year.