Dáil Éireann Debate, Thursday - 7 November 2024
58. Deputy Duncan Smith asked the Minister for Finance his views on the increase in the sale of diesel-powered cars; the fiscal and tax policies he intends to pursue to reduce the number of diesel-powered cars on the road; and if he will make a statement on the matter. [45505/24]
View answerThe existing vehicle tax structures in the State have a very strong environmental rationale, with the more pollutant, fossil-fuelled cars paying higher rates of tax, between Motor Tax, Benefit-in-Kind (BIK), Vehicle Registration Tax (VRT) and the Nitrogen Oxide (NOx) charge. In contrast, lower emission cars are subject to lower rates of tax. The current policy approach to carbon tax which involves a trajectory of multi annual rate increases also provides a clear signal of the Government's commitment reducing emissions and to fostering uptake of cleaner fuels and technology in road transport as well as other sectors.
VRT on category A vehicles (generally passenger cars) is assessed based on the value of the vehicle and its emissions levels for carbon dioxide (CO2) and NOx. The CO2 component of the VRT charge is a percentage of the vehicle’s Open Market Selling Price (OMSP), ranging from 7% for a vehicle with zero CO2 emissions, up to 41% of the OMSP for vehicles with the highest emission levels. The NOx component of VRT is calculated using a progressive scale, starting from €5 up to €25 per mg/km of the vehicle’s NOx emissions level. As a result, the total VRT charge increases according to the emissions output of the vehicle involved and its market value.
For vehicles registered on or after 1 July 2008, the motor tax rate is based on the CO2 emissions levels of the vehicle, as provided on the Certificate of Conformity. The current motor tax regime incentivises lower emission cars, with rates as low as €120 for electric vehicles (EVs) and as high as €2,400 for the highest emission internal combustion engine cars.
Since 1 January 2023, new rates of BIK have applied to the provision of an employer provided car, which take into account the CO2 emissions of the car. The amount taxable as a BIK remains determined by the car's original market value (OMV) and the annual business kilometres driven, with CO2 emissions bands used to determine whether a standard, discounted, or surcharged rate applies. The new structure is designed to incentivise employers to provide employees with low-emission cars. EVs benefit from a preferential rate of BIK, ranging from 9-22.5% depending on business mileage, and fossil-fuel vehicles are subject to higher BIK rates, of up to 37.5% where there is no business mileage.
As part of Budget 2025, I announced a BIK exemption to the provision of an EV charging facility by an employer at a director’s or an employee’s qualifying residence.
The current tax structures disincentivise the use of diesel-powered cars, however there has been a slowdown in EV sales across several international markets. As Ireland is now moving away from the early adopter EV buyer towards the mass market, uncertainty and instability in the market and public perceptions serve to make the move to EV more tentative for this cohort.
Tax incentives such as VRT relief of up to €5,000 for battery electric vehicles (BEVs), preferential rates of BIK and low motor tax rates all aim to incentivise the uptake of zero to low emission vehicles. Officials from my Department continue to monitor developments in the vehicle taxation area and engage with colleagues in the Department of Transport on an ongoing basis in order to support the transition to EVs. New proposals are considered and current vehicle tax policies are kept under review as part of the Tax Strategy Group and Budgetary cycle.
