Finance Bill 2020 sets out minor amendments to existing legislation to address climate change. The increases in carbon tax and changes to Vehicles Registration Tax (VRT) and the motor tax regime are not unexpected and were flagged in the Tax Strategy Paper released prior to Budget day, in addition to, being referred to in the Ministers speech.
The extension of the accelerated capital allowances scheme for energy efficient equipment is a positive move, as the current arrangements were due to expire on 31 December 2020. Current legislation gives authority to SEAI to maintain the list of energy efficient equipment which it can update from time to time.
The release of the Climate Action Bill and establishment of the Climate Action Council are setting the scene for future, more transformative, plans in the area of decarbonisation.
As referenced in the Budget speech, the Government is aiming to increase the price of carbon tax to €100 per tonne of CO2 by 2030.
The Finance Bill provides for 10 annual increases to rates of the carbon component of mineral oil tax. This first increase had an immediate effect from 14 October 2020 which was also announced on Budget day and will apply to remaining fuels from 1 May 2020.
The immediate change applies to petrol, aviation gasoline, and heavy oil used as a propellant or for air navigation or for private pleasure navigation.
For example, petrol in the "Light oil" category is now subject to mineral oil tax at €619.36 per 1,000 litres.
The rates for all other fuels for example, liquefied petroleum gas, will increase from 1 May 2021. In addition, the provisions relating to horticultural relief from mineral oil tax are amended to reflect the increase in the carbon charge component to heavy oil and liquid petroleum gas.
The Finance Bill provides for annual increases in the rate of natural gas carbon tax from May 2021 to May 2030. Based on the carbon increase outlined above, the rate of natural gas carbon tax per megawatt hour will increase from €5.22 to €6.06. This increase will apply from 1 May 2021.
The Act confirms an increase in the rates of solid fuel carbon tax for coal and peat. For example, the rate of tax for coal will increase to €88.23 per tonne. These increases will apply from 1 May 2021.
Finance Bill 2020 sets out a new structure for calculating VRT. It is based on emission performance levels which are much closer to actual performance levels. The system to be adopted is the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). It will be adopted from 1 January 2021 and is expected to give a more robust identification of the CO2 emissions that are emitted from a vehicle.
The amended table will reflect the new rates applicable to WLTP CO2 emissions. A formula will be applied to the emissions of cars tested under older emissions standards before the rate of tax due is established from the table.
Finance Bill 2020 amends the existing Nitrogen Oxide (NOx) charging table such that the lowest band will now be 0 – 40 mg/km (formerly 0 – 60 mg/km) (€5 per mg/km or mg/kWh) and the middle band will be 41 – 80 mg/km (formerly 61 – 80 mg/km) (€15 per mg/km or mg/kWh). The remainder above 80 mg/km is subject to €25 per mg/km or mg/kWh.
Revenue released e-brief No. 191/20 on 20 October 2020 which sets out changes to the tax and duty manual for the VRT regime. However, we note this does not include Finance Bill changes at the date of this publication.
An amendment has also been introduced to adjust the relief applicable to certain electric vehicles. Vehicles with an Open Market Selling Price (OMSP) of up €40,000 will be granted relief of up to €5,000. Vehicles with an OMSP of greater than €40,000 but less than €50,000 will receive a reduced level of relief. Reliefs have been removed for any electric vehicles above €50,000.
In addition, Section 34 of the Finance Bill means that all new cars which are registered in the State will be subject to tax based based on an increased number of emissions bands.
The existing scheme for accelerated capital allowances, included in s285A TCA 97, offers a 100% tax deduction for spending on certain energy efficient equipment. This results in an upfront cash advantage for businesses that choose the energy efficient option when purchasing equipment. The Finance Bill extends the time period for claims to 31 December 2023.
High-level figures provided by the Revenue Commissioners suggest there were around 600 transactions with a tax saving of €3.5 million in 2018 under the scheme. Micro-businesses and SMEs accounted for €2.6 million of this amount.
The Budget speech suggested that the scheme would be expanded. The current drafting of s 285A gives authority to the SEAI to update the list as required. The expansion of this scheme will be key to ensuring buy-in from a wider range of organisations, from MNCs to the micro and SME sector.
However, there are some limitations to be addressed in this regard:
Whether you are concerned about the impact of the Finance Bill changes on your business or you'd like to seek tax advice around your sustainability efforts, our Energy, Utilities and Resources tax group is here to support you. Contact us today.