I propose to take Questions Nos. 111, 236, 245, 246 and 252 together.
I am advised by the Revenue Commissioners, which have responsibility for the collection of mineral oil tax, that they are very aware of the threat fuel fraud poses to the Exchequer and to legitimate businesses. The most serious risk in relation to illicit trade in mineral oil products is from the laundering of markers from diesel that is subject to a reduced rate of mineral oil tax on condition that it is not used in road vehicles. EU Directive 2003/96/EC, which sets out the requirements for the taxation of energy products and electricity, permits diesel used for certain industrial and commercial purposes to be subjected to a lower rate of energy tax than that applied to auto-diesel. Those purposes include agricultural, horticultural and piscicultural works and in forestry, in stationary motors and in plant and machinery used in construction, civil engineering and public works. The Directive provides also that diesel used for certain other purposes, such as sea fisheries and commercial navigation, must be exempted from energy tax. Where diesel is released for consumption subject to a lower rate of energy tax, or is exempted from that tax, the fuel concerned may not be used as auto-diesel and must be marked, in accordance with EU Directive 95/60/EC on fiscal marking of gas oils and kerosene (and its associated Decisions), to distinguish it from auto-diesel. The corresponding provisions of Irish law are contained in the Mineral Oil Tax Regulations 2012 (S.I. No. 231 of 2012). Under these regulations, a specified substance and a blue dye must be added to the fuel, resulting in a green coloured marker.
This system of marking diesel has been an effective and efficient means of delivering a tax rebate on a product used by a very large number of users across a wide range of uses. Fuel laundering to remove the marker added to lower-taxed mineral oil for off-road use has been a persistent problem over the years. However, it remained a marginal activity because the sulphur content of marked fuel was higher than that for road fuel and therefore the sulphur content continued to distinguish laundered fuel from genuine road fuel. Environmental requirements in relation to the sulphur content of fuel changed from the beginning of 2011, which resulted in marked fuel with the same sulphur content as road fuel coming onto the market. With this change, fuel laundering became more viable and criminal gangs intensified their laundering and distribution activities dramatically from the first half of 2011. In response, Revenue has made action against fuel laundering one of its priorities and is implementing a comprehensive strategy to tackle the problem through enhanced supply chain controls, the acquisition of a more effective fuel marker and continued robust enforcement action.
This strategy included strengthening the licensing conditions for auto-fuel traders in 2011 and the introduction of a new licensing system for marked fuel traders in October 2012. In addition, since January 2013, all licensed fuel traders are required to make electronic returns to Revenue of their fuel transactions each month. These supply chain control measures are designed to make it difficult for fuel criminals to source marked fuel for laundering and to get laundered product onto the market. Analysis of the monthly returns of fuel trading will enable Revenue to identify suspicious or anomalous fuel transactions and patterns of distribution. Analysis of the first few months of returns data is well advanced. Traders found to be involved in suspicious activity will be investigated and if they are unable to account properly for the source or disposal of product, they will face revocation of their licence, tax assessment and prosecution where appropriate. In addition, Revenue and HM Revenue & Customs in the UK signed a Memorandum of Understanding in May 2012 on a joint approach to finding a more effective marker for use in both jurisdictions. A number of proposals for a new marker submitted in response to an Invitation to Make Submissions are being evaluated. The outcome of this process is expected later this year. Revenue, in co-operation with other law enforcement agencies on both sides of the Border, continues to intensify enforcement action against fuel fraud and this work has yielded significant results to date. In the past two years 97 filling stations throughout the State were closed for breaches of licensing conditions. Since the beginning of 2010, over 2.8 million litres of fuel have been seized and 29 oil laundries detected and closed down, including five oil laundries in 2013 to date.
While there have been a number of calls for the replacement of the current marking scheme with a rebate scheme, a change of this nature would impact on a wide range of users, would be costly to implement and would, itself, be at risk from fraud. Marked gas oil has a variety of uses including the propulsion of trains, the operation of agricultural, construction and industrial machinery, commercial sea-navigation (including fishing) and commercial and home heating purposes. A change to a rebate system for all users would involve the establishment of an expensive repayments system and place a new administrative burden on oil traders, users and the Revenue Commissioners. It would also impose significant cashflow costs for those currently using marked gas oil. Also, repayment schemes are vulnerable to abuse and the introduction of a wide-ranging scheme such as that proposed would not necessarily offer greater security against fraud than the current arrangements.
It has been suggested recently that huge savings could be made by moving from the current system of marking rebated fuel to one based on making repayments to those users that currently use marked fuel. This seems to be based on the erroneous view that adding the prescribed markers to rebated fuel is exceptionally costly and is borne by the Exchequer. This is not the case; the cost of the markers is negligible and is borne by the industry. The cost to the Exchequer of marked fuel is the tax foregone and an alternative system based on direct repayments to users would not produce any savings for the Exchequer and might be more costly if the incidence of fraud were greater. If the fuel for off-road use was not marked under the new system, it could be diverted easily to road use; if it was marked it could be laundered as at present. It would also be the case that marked fuel from Northern Ireland would continue to be available and could be laundered by fuel criminals based in Border areas.
For these reasons, I am not proposing any change to the existing scheme. I strongly support the current strategy bring implemented by Revenue and am confident that it will succeed with the co-operation and support of the legitimate trade. I am informed by the Revenue Commissioners that the industry has worked very closely with them in developing and implementing their strategy. Revenue regularly reminds motorists and the public generally that, in addition to its impact on the Exchequer and legitimate trade, they should be aware of the risks posed to their vehicles by using laundered fuel and the fact that sourcing fuel in this way is funding criminal activity. The legitimate retail trade can also contribute to closing down this illegitimate trade by providing information on the outlets that are selling laundered diesel. Revenue chairs the Hidden Economy Monitoring Group (HEMG) and has established regional sub-groups of the HEMG to facilitate the reporting of information by traders through their representative associations. Retailers who suspect or have evidence that laundered diesel is being sold in their area should report this through their representative associations to the Revenue. Such reports are treated as confidential and are fully investigated by Revenue.