I am advised by the Revenue Commissioners that the suggestion that huge savings could be made by moving from the current system of marking rebated fuels to one based on making repayments to those users that currently use rebated fuels is 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. There have been a number of calls for the replacement of the current marking scheme with a repayment scheme. However, 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 and wide-ranging repayments system and place a new administrative burden on oil traders, users and the Revenue Commissioners. It would also impose significant cash-flow costs on those currently using marked gas oil.
Also, repayment schemes are vulnerable to abuse and the introduction of a wide-ranging repayment scheme such as that proposed would not necessarily offer greater security against fraud than the current arrangements. If the fuel for off-road use was not marked under the new system then it could be diverted easily to road use; if it were 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.
The system of marking rebated fuel 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 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 standards 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 terms of the cost to the exchequer of fuel laundering, I am advised by the Revenue Commissioners that estimating the extent of any illegal activity and the associated cost to the exchequer is inherently problematic. While there is no reliable estimate of the scale of the fuel laundering problem and the consequential loss to the exchequer, they recognise that it represents a significant threat to the exchequer and to the legitimate trade.
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 is enabling Revenue to identify suspicious or anomalous fuel transactions and patterns of distribution. Traders found to be involved in suspicious activity are investigated and if they are unable to account properly for the source or disposal of product will face revocation of their license, tax assessment and prosecution, where appropriate. There is evidence that these measures are having an impact on the ability of fuel launderers to source marked diesel for laundering and to supply the laundered fuel to legitimate outlets.
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 107 filling stations throughout the State were closed for breaches of licensing conditions. In the period since 2011, over 2.9 million litres of fuel have been seized and 28 oil laundries detected and closed down, including 7 oil laundries in 2013 to date.
In addition, Revenue and HM Revenue & Customs in the UK are collaborating on identifying a more effective marker for use in both jurisdictions. A number of proposals for a new marker were received in response to an Invitation to Make Submissions and I understand that this process will be finalised shortly.
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.
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.
