Michael Healy-Rae (Kerry, Independent)
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94. To ask the Minister for Finance if the classification of hydrotreated vegetable oil from a substitute fuel to a biofuel will be considered in the forthcoming Finance Act (details supplied); and if he will make a statement on the matter. [43457/23]

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions. However some general information is provided below.

Finance Act 1999 provides for the application of excise duty in the form of Mineral Oil Tax (MOT) to liquid fuels used for motor or heating purposes. MOT is comprised of a non-carbon component and a carbon component. The carbon component is referred to in legislation as the carbon charge, but it is more commonly referred to as the carbon tax. The non-carbon component of MOT is often referred to simply as “excise”, “fuel excise”, “fuel tax” or “fuel duty”, but it is important to note that both it and the carbon tax are the two components of MOT which is an excise duty.

MOT law specifies excise duty rates for certain liquid fuels such as petrol, auto-diesel, kerosene and marked gas oil (MGO). Fuels used for propellant purposes (e.g. for powering motor vehicles) are subject to standard rates of MOT whereas fuels used for non-propellant purposes, such as heating, are subject to reduced MOT rates. Any liquid fuel which is not specified in MOT law is defined by that law as a “substitute fuel” and is subject to MOT. Under the law, the rate of MOT applicable to a substitute fuel is determined by the use to which it is put: thus a substitute fuel used in place of auto-diesel attracts the auto-diesel rate of MOT, and the petrol rate of MOT applies to a petrol substitute. Substitute fuels which are used for reduced rate purposes, such as heating, attract the MGO rate of MOT.

MOT law defines a biofuel as any substitute fuel made from biomass. Biomass is further defined as the biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste. Different types of biofuels, such as hydrotreated vegetable oil, are not specified in legislation, meaning that any liquid fuel that meets the criteria of being produced from biomass is treated as a biofuel for MOT purposes. It is important to note that the MOT treatment of a particular biofuel – like all substitute fuels – is determined by its use.

Under MOT law biofuels are not classified separately to substitute fuels, they are a subcategory of substitute fuels. As already outlined, substitute fuels used for reduced rate purposes, such as heating, attract the MGO rate of MOT. Section 100(5) of Finance Act 1999, which has been in place since 2012, provides that biofuels are relieved from the carbon component of MOT. The table below summarises current MOT rates applicable to substitute fuels and details the differentiated treatment of substitute fuels of non-biomass origin and substitute fuels produced from biomass, i.e. biofuels.

As the rates above indicate, biofuels used for heating qualify for the reduced MOT rate applicable to all non-propellant purposes and are also relieved from carbon taxation. Inclusive of VAT, the current MOT cost on a litre of biofuel used for heating is two cents (€0.02). This preferential tax treatment is intended to promote a higher level of biofuel usage and supports the Government’s commitment to incentivising more environmentally friendly alternatives to fossil fuels. As the carbon component of MOT is fully relieved for biofuels for both propellant and non-propellant purposes, these fuels are not impacted by the ten-year trajectory of carbon tax increases which was introduced in Finance Act 2020. This means that, as annual increases in the carbon tax take effect, the differential in tax costs between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.

Michael McGrath (Cork South Central, Fianna Fail)
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I am advised by Revenue that approved retirement funds (ARFs) are not pensions but post-retirement investment vehicles through which individuals can invest the proceeds of their pension fund at retirement and draw cash as required.

By way of background, prior to the introduction of the ARF in Finance Act 1999, any person taking a pension from a Defined Contribution (DC) scheme or a Retirement Annuity Contract had to purchase an annuity with their remaining pension pot after drawing down the permissible tax-free retirement lump sum. The ARF arrangement expanded the options at retirement so that, as an alternative to the annuity option, the balance of a pension fund could be taken in cash (subject to tax, as appropriate) or be invested in an ARF, subject to certain conditions.

ARFs were initially confined to holders of personal pensions and proprietary director members of occupational pension schemes. Finance Act 2000 extended the ARF option to the part of an employee’s occupational pension fund built up from Additional Voluntary Contributions (AVCs). It was further extended in Finance Act 2011 to cover an employee’s entire pension fund where the fund is a DC occupational pension scheme.

In contrast to a pension to which an individual makes direct contributions to the pension fund, an individual does not make contributions directly into an ARF. Instead, an ARF provides a vehicle in which an individual may invest the accumulated proceeds of their pension funds on retirement. The beneficial ownership of the assets in an ARF remains with the individual but must be managed by a qualified fund manager (QFM), as defined in section 784A Taxes Consolidation Act 1997 (TCA).

Unlike a pension, an ARF allows the individual greater control over the investment of their assets, subject to certain investment restrictions as set out in Chapter 19 of Revenue’s Pensions Manual.

The categorisation of an ARF as a post-retirement investment vehicle and not a pension has also been upheld by two recent Tax Appeal Commission (TAC) determinations, 36TACD2019 and 28TACD2023.

Finally, it should be noted the Inter Departmental Pension Reform and Tax Group in its 2020 Report recommended that the ‘ARF option’ should be discontinued on a prospective basis to be replaced by a combination of inscheme drawdown and a re-designed Personal Retirement Savings Account which operates as a whole-of-life product. This would both simplify the pension landscape and enhance consumer outcomes by improving regulation and reducing costs. Work on implementing this complex piece of work is ongoing.

Gerald Nash (Louth, Labour)
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96. To ask the Minister for Finance if he will outline, in view of the Low Pay Commission's recommendation that the hourly rate of the national minimum wage should rise to €12.70 in 2024, the estimated full-year cost of adjusting USC rates to avoid a cliff edge for full-time workers on the national minimum wage; and if he will make a statement on the matter. [43507/23]

Michael McGrath (Cork South Central, Fianna Fail)
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The Department of Enterprise, Trade and Employment has policy responsibility in relation to the national minimum wage and any changes to the national minimum wage are a matter for that Department and the Minister for Enterprise, Trade and Employment in the first instance.

I am advised by Revenue that the estimated cost of increasing the upper end of the 2^ndband of the USC by €2,840 to €25,760 is €115 million and €135 million on a first and full year basis respectively.