Catherine Murphy (Kildare North, Social Democrats)
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214. To ask the Minister for Finance if he will clarify an aspect of section 4 of the Taxes Consolidation Act 1997 benefit-in-kind charges in the context of the action plan on climate change; the way in which BIK changes can incentivise companies to change the fleets of vehicles to hybrid and or electric in view of the fact that under the current policy 0% BIK exemption for electric vehicles will cease at the end of 2022 with no certainty if this will be extended; and if he will consider the example (details supplied). [27441/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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Ireland’s vehicle benefit-in-kind (BIK) regime has come under criticism for the absence of any environmental rationale underpinning its design. In recognition of this, the Government’s Climate Action Plan contained a commitment to consider the introduction of an environmental rationale into the vehicle BIK regime.

In Finance Act 2019 I legislated for a CO2-based BIK regime for company cars from 1/1/2023. From that date the amount taxable as BIK remains determined by the car’s original market value (OMV) and the annual business kilometres driven, while new CO2 emissions-based bands will determine whether a standard, discounted, or surcharged rate is taxable. The number of mileage bands is reduced from five to four.

I believe that better value for money for the taxpayer is achieved by curtailing the amount of subsidies available and building an environmental rationale directly into the BIK regime. It was determined in this context that reforming the BIK system to include emissions bands provides for a more sustainable environmental rationale than the continuation of the current system with exemptions for electric vehicles. The 0% BIK rate forms part of a broader series of very generous measures to support the uptake of electric vehicles, including a reduced rate of 7% VRT, a VRT relief of up to €5,000, low motor tax of €120 per annum, SEAI grants, discounted tolls fees and 0% BIK on electric charging. The BIK exemption was intended as a temporary measure and is set to end at year end 2022, coinciding with the onset of the new BIK regime on 1/1/2023.

The reduction in mileage bands from five to four bands serves to weaken any perverse incentives of increasing mileage to reduce tax liability, while still seeking to tax the person in proportion to the quantum of benefit derived from the car. Electric vehicles will benefit from a preferential rate of BIK, ranging from 9 – 22% depending on mileage. This new structure with CO2-based discounts and surcharges provides a broad structure which will incentivise employers to provide employees with low-emission cars.