A review of agricultural contracting carbon-tax levies is set to take place in the first half of 2022, according to Minister for Finance, Paschal Donohoe.
Agricultural contractors have been calling for a tax rebate scheme, or similar level of tax relief option that is available to farmers, to be introduced to help offset some of the additional costs imposed by carbon-tax increases and fuel-price hikes.
Currently farm diesel is exempt from such carbon tax increases but contractors are not entitled to avail of this relief under section 664A of the Taxes Consolidation Act 1997.
The Act states that this relief is only available to those who are ‘farming’ which according to the Act, requires the occupation of farmland. As agricultural contracting does not require the occupation of farmland, contractors are not eligible to apply for relief.
What is the carbon tax on farm diesel?
Mineral oils such as petrol, road diesel and farm diesel (marked gas oil) are subject to an excise duty called mineral oil tax. The ‘carbon tax’ referred to in section 664A of the Taxes Consolidation Act 1997 refers to the carbon component of mineral oil tax for farm diesel, which was introduced in May 2010. Currently, only farmers are exempt from carbon tax increases to farm diesel.
However, agricultural contractors who incur expenses in relation to farm diesel in the course of their trade of agricultural contracting may claim an income tax or corporation tax deduction for these expenses. This includes any carbon tax charged in respect of the diesel.
In Budget 2022, Minister for Finance, Pascal Donohoe, introduced a carbon tax increase of €7.50/t, bringing the total cost to €41/t. This charge will come into force from May 1, 2022.
This increase, agricultural contractors say, in addition to rising diesel prices, will cost the industry up to €30 million in additional fuel costs.
Minster Donohoe said a review of this situation was to take place in 2019 – in the context of a wider report on agri-tax reliefs and the government’s climate policy – but due to Covid-19, was deferred.
In a recent parliamentary question, Sinn Féin’s farming spokesperson Matt Carthy, asked the Minister for Finance if recommendations from the proposed review – to give contractors similar status as farmers regarding tax on farm diesel – would be implemented prior to May 2022.
Minister Donohoe said his department is “hopeful that the way will be clear for the promised review to be carried out, most likely in the first half of 2022“.
However, he added, “decisions regarding taxation measures are made having regard to the annual Budget and Finance Bill processes”, and that any tax measures must be consistent with Climate Action Plan targets.