Tommy Broughan (Dublin North East, Independent)
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60. To ask the Minister for Finance in view of the significant increase approved by the Commission for Energy Regulation in the amount of PSO levied on electricity customers; and if he will consider a review of the application of VAT to the PSO element of electricity bills which effectively amounts to double taxation. [40774/14]

Michael Noonan (Limerick City, Fine Gael)
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With regard to the application of VAT on electricity bills, in accordance with section 37(1) of the Value-Added Tax Consolidation Act 2010, the amount on which VAT is chargeable is the total consideration receivable by the supplier, "including all taxes, commissions, costs and charges whatsoever", but not including the VAT itself.  This reflects EU VAT law, with which Irish tax law must comply.  In this regard, Article 78 of the EU VAT Directive provides that the taxable amount shall include "taxes, duties, levies and charges, excluding the VAT itself".

In this respect, where the charge for a supply of service, such as an electricity bill, includes the Public Service Obligation levy, VAT law dictates that VAT should be calculated on the PSO levy element of the charge as well as the charge for the service.  The same situation applies in the case of other excises, including for example excises on petrol, auto-diesel, tobacco and alcohol products.

With regard to the level of the PSO levy, my colleague, the Minister for Communications, Energy & Natural Resources, informs me that the levy has been in place since 2001 and is the overall support mechanism for electricity generation constructed for security of supply purposes, including peat generation, and for the development of renewable electricity. It is levied on electricity customers only. There is no PSO levy associated with gas bills. The levy is designed to compensate electricity suppliers for the additional costs they incur by purchasing electricity generated by PSO funded producers. The PSO levy is vital to enable Ireland to meet its 2020 40% target for electricity generated from renewable sources by 2020, which in turn is important for the achievement of Ireland's 16% EU 2020 target for renewable energy.

The Minister for Communications, Energy and Natural Resources further informs me that the biggest driver for the levy rise for this year is the lower predicted wholesale market electricity price, which is currently estimated to be around 10% lower than last year. This results in lower predicted market income for the PSO plants and, therefore, a higher levy is required to cover their allowed costs. The lower wholesale electricity price is currently being driven by lower international gas prices in evidence since spring 2014. This drives up the proposed PSO levy. However, if these lower gas and wholesale prices are sustained, it will reduce the wholesale cost of electricity that suppliers pay. In turn, suppliers should be in a position to reduce their retail prices and potentially offset the PSO levy increase. Increased competition in the retail electricity sector recently should help offset some of this increase. The Commission for Energy Regulation is tasked with retail market monitoring and executes this role vigorously to ensure competition leads to the fairest prices for customers.