Written answers

Thursday, 19 January 2023

Photo of Fergus O'DowdFergus O'Dowd (Louth, Fine Gael)
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202. To ask the Minister for Finance the way in which he and his Department are managing the taxation of biofuels; if he is planning on changing policy in this regard going forward; and if he will make a statement on the matter. [56966/22]

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Finance Act 1999 provides for the application of excise duty in the form of Mineral Oil Tax (MOT) to liquid fuels. MOT is comprised of a non-carbon component and a carbon component with the carbon component being commonly referred to as carbon tax. The non-carbon component of MOT is often referred to as “excise”, “fuel excise”, “fuel tax” or “fuel duty” but it is important to note that both components are part of MOT which is an excise duty.

As outlined in my predecessor Minister Donohoe’s recent responses to questions about biofuels and Hydrogenated/Hydrotreated Vegetable Oil (HVO), the State’s MOT law - as governed by Council Directive 2003/96/EC of 27 October 2003, commonly known as the Energy Tax Directive (ETD) - relieves biofuels from the carbon component of MOT. This relief has been in place since 2012 and is set out in section 100(5)(a) of Finance Act 1999. Where a fuel meets the criteria of being produced entirely from biomass no carbon taxation currently applies under MOT law.

In addition to the biofuel relief from carbon taxation, Finance Act 1999 provides for differentiated MOT rates for propellant fuels and fuels used for other purposes. This means that fuels used for heating are not subject to the significantly higher rates of MOT that apply to road vehicle propellants. Liquid fuels such as HVO, which are not specified mineral oils, are defined in MOT legislation as substitute fuels. A substitute fuel used for heating purposes is chargeable, under section 96(2A)(c) of Finance Act 1999, at the MOT rate that applies to Marked Gas Oil (MGO). This rate is currently €111.14 per 1,000 litres and is comprised entirely of carbon tax. As the carbon tax is fully relieved for biofuels no MOT currently applies to biofuels used for heating purposes. With regard to blended fuels produced partially from biomass, the relief applies to the biofuel portion. Full details on MOT rates are published on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/excise/excise-duty-rates/energy-excise-duty-rates.pdf

The relief from the carbon component of MOT for biofuels reflects a clear policy to incentivise the use of such fuels. As the ten-year trajectory of carbon tax increases introduced in Finance Act 2020 are implemented, the tax differential between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.

In relation to Value-Added Tax (VAT), the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive. Motor fuels such as petrol including bio-ethanol petrol blends and auto-diesel are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they are liable to VAT at the standard rate, currently 23%. Biofuel and non-food vegetable oils, such as HVO, used to fuel vehicles also attract the standard rate of VAT. HVO used as heating fuel is liable for the reduced VAT rate of 13.5%.


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