There will be no excise duty on green diesel for the “foreseeable future” as a means of supporting the farming and contracting sectors in Ireland, the Minister for Agriculture, Food and the Marine has confirmed.
Minister Charlie McConalogue was speaking during question time in the Dáil recently where he outlined that the government’s removal of an initial 2c/L and subsequent 3c/L excise rate on agricultural diesel, means that there is no possibility to further reduce excise.
He was answering a question put to him by Deputy Carol Nolan about what measures the government is taking to support the agricultural contractors sector.
She said that Farm Contractors Ireland (FCI) has highlighted its concern for the sector’s viability, stating that significant fuel costs are making the situation impossible for contractors.
She said that FCI research has shown that, during 2021, its members were being quoted an average green-diesel bulk-delivery price of 75c/L, plus VAT, with slight variations throughout the year.
“In recent weeks, quotations have risen to nearly double that and now average €1.30/L, plus VAT. This is the highest-ever price quoted for MGO [marked gas oil, or green diesel] for farm and forestry contractors and we need action from the government,” she said.
Removal of carbon tax
She also stated that the FCI is renewing its request for the carbon tax on green diesel to be removed for a five-year period in order to “reduce costs and allow adequate time for the international machine development and supply sector to provide alternatives to internal combustion engines”.
Minister McConalogue acknowledged that one of the main input costs for contractors is fuel “which has been subject to significant price rises in recent months”.
Responsibility for the taxation of fuel lies with the Minister for Finance, he explained, adding that he continues to work closely with the finance minister to “ensure the tax code reflects the government’s priorities for the agri-food sector”.
And he said that he is also working closely with the Minister of State, Deputy Martin Heydon, in advocating for that.
He also stated that he would meet with the FCI in the coming weeks but did not comment on the carbon-tax removal request.
Tax on fuel – explained
Ireland’s taxation of fuel is governed by European law, as set out in the energy tax directive.
The Finance Act 1999 provides for the application of excise duty in the form of mineral oil tax.
Gas oil that qualifies for a reduced rate of mineral oil tax is marked green and is usually referred to as ‘marked gas oil‘ (MGO), also known as green diesel, or agricultural diesel.
Mineral oil tax is comprised of:
- A carbon component, which is commonly referred to as carbon tax; and
- A non-carbon component, which is often referred to as excise duty.
In March 2022, the Minister for Finance reduced the excise rate on agricultural diesel by 2c/L and then, again, by an additional 3c/L from May 1.
Those who incur expenses in respect of farm diesel in the course of farming or the trade of agricultural contracting may claim an income tax or corporation tax deduction for these expenses, including any carbon tax charged in respect of the diesel.
This total reduction of 5c/L reduces the non-carbon component, or excise, to zero.
So, the current rate of mineral oil tax on agricultural diesel – through carbon tax – is €111.14/1,000L.
The current rate applied to auto diesel is €405.38/1,000L.