Written answers
Tuesday, 9 April 2024
Department of Finance
Tax Code
Francis Noel Duffy (Dublin South West, Green Party)
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280. To ask the Minister for Finance his views on the assertion that the new BIK thresholds and rules encourages drivers who are in possession of company cars to do additional unwanted mileage to ensure they receive maximum benefit under the new scheme; if this will be reviewed in light of the environmental impact of the change; and if he will make a statement on the matter. [13749/24]
Michael McGrath (Cork South Central, Fianna Fail)
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The Government remains committed to the environmental rationale behind the current emissions-based vehicle benefit-in-kind (BIK) regime, which has been in operation since 1 January 2023. Since this date, the amount taxable as BIK continues to be determined by the car’s Original Market Value (OMV) and the annual business kilometres driven, while new CO2 emissions-based bands determine whether a standard, discounted, or surcharged rate is taxable. The number of mileage bands were also reduced from five to four.
Battery Electric vehicles (BEVs) benefit from a preferential rate of BIK, ranging from 9-22.5% depending on mileage, while fossil-fuel vehicles are subject to higher BIK rates, up to 37.5%. This new structure with CO2-based discounts and surcharges is designed to incentivise employers to provide employees with low-emission cars.
I am aware that the mileage bands in the new BIK structure can be perceived as incentivising higher mileage to avail of lower rates, leading to higher levels of emissions. The rationale behind the mileage bands is that the greater the business mileage, the more the car is a benefit to the company rather than its employee (on average); and the more the car depreciates in value, the less of a benefit it is to the employee (in years 2 and 3) as the asset from which the benefit is derived is depreciating faster. Mileage bands also ensure that cars that are more integral to the conduct of business receive preferential tax treatment.
In addition to the favourable treatment for low emission vehicles in the new BIK structure, Budget 2024 also extended the EV tapering mechanism applied to BIK relief for electric vehicles of €35,000 to end 2025, with reductions of €20,000 in 2026 and €10,000 in 2027. This measure forms part of a broader series of generous tax related measures for BEVs, including a reduced rate of 7% VRT, a VRT relief (to end 2025), low motor tax of €120 per annum, and 0% BIK on electric charging.
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