The government has been advised to signal a change in tax policy on green diesel for farmers this year.
However, in pre-budget papers published by the Tax Strategy Group (TSG) yesterday (Wednesday, August 10) it is advised that such a change should be deferred until a later date.
Among the range of issues examined by the TSG was whether farmers should continue to benefit from a double tax deduction on green diesel when other sectors are required to share the costs of carbon tax increases.
Introduced by the government in 2012, section 664A aims to insulate farmers from any carbon tax increases above the rate of tax that applied in 2012 (€41.30/1,000L).
On top of the normal deduction which farmers get in respect of their input costs (including fuel), they also get a second deduction in respect of any increases in the carbon tax which are in excess of the €41.30/1,000L.
In practical terms, they pay the tax but can claim anything above 4c/L back as a deduction at their marginal rate.
TSG noted the point of the absence of viable alternatives to the internal combustion engine.
However, it said that the commercial transport or construction sectors are in the same predicament and cannot avail of the tax concession.
“On the grounds of equity, the case for a continuation of section 664A for farmers is not a strong one,” TSG stated.
The annual cost of the current concession for farmers to the Exchequer is roughly estimated around €12 million at current rates of carbon tax.
In more benign circumstances for farm enterprises, the group said that a clear recommendation to remove section 664A on a phased basis might be appropriate.
However, it noted that the war in Ukraine has caused fuel prices to rise and raise concerns over food security and fodder supply.
“Against this background, the 2022/2023 autumn-winter period would not seem to be the appropriate time to make a change. It may be preferable to consider signalling a policy change in the current year but to defer action until a later date.”
TSG also noted that farm contractors have requested for the scope of section 664A to be extended to include them, which it estimated would cost the Exchequer a further
€24 million annually.
The government is currently carrying out a review on the matter.
“If it is considered that farm contractors require support, this might best be addressed in the context of a longer-term policy for agriculture,” the group said.
The TSG, which is chaired by the Department of Finance, is not a decision-making body.
The papers produced annually by the department are simply a list of options and issues to be considered by the government in the budgetary process.