John Deasy (Waterford, Fine Gael)
Link to this: Individually | In context

Question 77: To ask the Minister for Finance the Excise Duty and VAT collected by the Government from the sale of heating oil, diesel, petrol and gas to the Government in 2006, 2007 and to date in 2008; his views on the proposal due to be discussed by the EU Commission to introduce tax cuts in this area to alleviate the financial hardship; and if he will make a statement on the matter. [24155/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

I am informed by the Revenue Commissioners that the amounts of Mineral Oil Tax and VAT on these products for 2006, 2007 and the first five months of 2008 are as set out in the following tables.

I am also advised that the VAT yield from oil products and gas is estimated, as the information to be furnished on VAT returns does not require the yield from a particular sector or sub-sector of trade to be identified. The figures provided in this reply for the VAT yield in 2008 are estimates of the amount of VAT yield that would be generated by the volume of clearances of oil products and gas up to the end of the period in question. Mineral Oil Tax is paid in the month of clearance of the product but, depending on the nature of the registration status of a trader, VAT returns can be made monthly, bi-monthly, quarterly, half yearly or annually and this will dictate the point in time when VAT on sales will actually be paid.

The Government recognises the concerns arising as a result of the increase in fuel prices. However, the increase in the price of fuels is not tax driven, but is an international phenomenon affecting all countries, and all sectors of the economy and society. Fuel prices are driven by a number of factors including the price of oil on international markets, exchange rates, production costs and refining costs. The rise in oil prices over recent periods reflects additional factors such as geopolitical uncertainty, supply disruptions and strong economic growth in countries such as China.

I would point out that excise duty rates on fuels in Ireland are relatively low by EU standards. Excise rates for diesel, petrol and other fuel oils have not been increased in the last four Budgets. In addition, over recent years the excise duty rates applicable to both kerosene and LPG used for home heating purposes have been reduced to zero.

The Exchequer yield from excise, as excise is set at a nominal amount, does not increase as the price of fuels increase. On the other hand, the yield from VAT, as VAT is set as a percentage of the price, increases as the price of fuels increase. However, in this regard it should be borne in mind that to the extent that spending in the economy is re-allocated to petrol, diesel and other oil products, and away from other VAT liable spending, and to the extent that the overall level of economic activity is reduced by higher oil prices, there may be little or no net gain to the Exchequer.

In relation to VAT, I should point out that businesses are of course entitled to reclaim VAT incurred on their business inputs, including VAT incurred on fuel. For example, VAT incurred on auto-diesel, marked gas oil (MGO or green diesel) kerosene and natural gas used in the course of business is a deductible credit for business in the Irish VAT system.

Insofar as calls for reduced taxes at an EU level are concerned, given the impact high oil prices can have on growth rates, Ecofin considered the issue of an appropriate policy response to the price increases at its meeting on 3 June 2008. Ecofin confirmed the agreement reached in Manchester in 2005 that distortionary fiscal and other policy interventions should be avoided that prevent the necessary adjustments by economic agents. Reducing taxes on fuels would send the wrong signal both to consumers and to oil producers. We must therefore be careful not to exacerbate an already difficult situation. The high price of fuel illustrates the need for energy efficiency and alternative fuel sources.

The Government has taken successive opportunities to make real and significant increases to the payments to pensioners and the socially excluded, and also to reduce the levels of tax paid by lower income earners. The Deputy will also be aware that the National Fuel Allowance Scheme and the Households Benefits Package provide specific assistance to the less well off in respect of fuel costs.