Budget 2020: Indirect Taxes

09 Oct 2019 | 12.49 pm

Budget 2020: Indirect Taxes

Carbon Tax increase to €26 per tonne

09 Oct 2019 | 12.49 pm

In recognition of the challenge of climate change, the minister announced a number of targeted indirect tax measures, write David Duffy, Glenn Reynolds and Terry O’Neill (pictured) from KPMG.

Carbon Tax

The minister announced his longer term intention to increase the price of carbon from €20 (per tonne of CO2 emitted) to €80 per tonne by 2030. As a first step towards this target, the rate of carbon tax will increase by €6 to €26 per tonne. The increase will equate to approximately a 2 cent per litre increase in the price of fuel at the pump.

This increase will apply to auto fuels with effect from midnight 8 October 2019. An equivalent increase in carbon tax for other fuels will be delayed until May 2020, after the winter heating season. This increase is expected to generate an additional tax take of €90 million in 2020 which will be ring-fenced to fund climate action measures.

The minister also announced that the forthcoming Finance Bill will provide for additional relief for hauliers via the Diesel Rebate Scheme to compensate that sector for the increase in the cost of fuel. This scheme was originally introduced in 2013 and provides for the repayment of a portion of the mineral oil tax paid by a qualifying road transport operator, where certain conditions are met.

Vehicle Registration Tax (VRT)

The VRT reliefs available for conventional hybrid electric vehicles and plug-in hybrid electric vehicles will be extended for a further year to 31 December 2020, subject to certain CO2 thresholds. The relief is capped at €2,500 for a plug-in hybrid vehicle and €1,500 for other hybrid vehicles.

The minister announced that the 1% VRT surcharge for newly registered diesel vehicles introduced in Budget 2019 will be replaced with a nitrogen oxide (NOx) emissions based surcharge. This surcharge will apply on a euro per milligram/kilometre basis (with the rate increasing in line with the level of nitrogen oxide emitted) and will apply to all passenger cars registered for the first time in the state from 1 January 2020.

Electricity Tax

The rate of Electricity Tax for businesses will be increased from €0.50 per megawatt hour (MWh) to €1 per MWh in order to equalise with the rate for non-business. This is estimated to generate additional revenues of €2.5 million per annum.

VAT Recovery on Commercial Vehicles

The minister announced that the Finance Bill will include measures to reduce the qualifying CO2 threshold for VAT reclaims on commercial vehicles. While further details are awaited in the Finance Bill, this would appear to introduce a new condition for VAT recovery on such vehicles, as currently there is no restriction for businesses on reclaiming VAT on commercial vehicles based on the level of CO2 emissions.

Betting Duty

In recognition of difficulties encountered by small independent bookmakers, the minister announced the introduction of a relief from betting duty and betting intermediary duty up to a limit of €50,000 per calendar year. This relief will only apply to single undertakings and is subject to conditions laid down in State Aid regulations.

Excise Duty

The excise duty on a packet of 20 cigarettes will increase by 50 cents (including VAT), with a pro-rata increase on other tobacco products. This measure will take effect from midnight on 8 October 2019 and is estimated to generate an additional tax take of €57 million annually.

The minister also announced an increase, from 40,000 to 50,000 hectolitres, in the maximum annual quantity of beer that a microbrewery can brew, in order to qualify for the existing 50% relief from Alcohol Products Tax. However, the amount of beer on which the relief can be claimed by qualifying microbreweries will remain capped at 30,000 hectolitres per year.

Click here to view detailed Budget 2020 sectoral analysis from KPMG experts 

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