The key climate change and environmental tax measures introduced in Finance Bill 2021 are as follows:
- The Bill confirms a Carbon Tax increase of €7.50 up from €33.50 to €41.00 per tonne of carbon dioxide emitted. This applies from 13 October 2021 for auto fuels and 1 May 2022 for all other fuels
- The Bill provides for a revision of the Vehicle Registration Tax (VRT) rates tables from 1 January 2022, for vehicles that fall into Bands 9 - 20.
- As indicated in the Budget, the Bill extends the €5,000 relief for battery vehicles (BEVs) up to the end of 2023
- The Benefit-in-Kind (BIK) exemption for battery electric vehicles is extended to 2025. However, from 2023, there will be a gradual tapering off of the open market value (OMV) upon which the relief is based.
- The Bill made a number of changes to the existing accelerated capital allowance regime for energy efficient equipment, extending the scheme for three years up to 31 December 2024 and tailoring the scope of the relief to remove equipment directly powered by fossil fuels and include hydrogen powered vehicles and refueling equipment.
- The Bill also legislates for the introduction of a tax relief for micro-generation of electricity by households who sell residual electricity (which they generate) back to the grid.
- Finally, while not specifically legislated for in the Bill, the launch of Ireland's Sustainable Finance Roadmap is another welcome development in the sustainable financing space.
Analysis of the key measures
Carbon Tax:
- The Carbon Tax increase is in line with the annual increases provided for in Finance Act 2020. This will bring the rate up to €100 per tonne of carbon dioxide emitted by 2030.
- The additional revenue generated by these increases will be targeted towards preventing fuel poverty and other initiatives including a national retrofitting programme.
Vehicles Registration Tax (VRT):
The VRT rate increases are tiered to further incentivise purchase and registration of lower emission vehicles. The band increases are as follows:
- Bands 16 - 20: 4% increase
- Bands 13 - 15 - 2% increase
- Bands 9 - 12 - 1% increase
- Bands 16 - 20: 4% increase
- The €5,000 VRT relief for BEVs is extended to the end of 2023 to provide continued incentive to purchase electric vehicles
Benefit-in-Kind (BIK) for electric vehicles:
- While the BIK relief for BEVs is extended, it is being tapered off from 2023. The OMV will be reduced by €35,000 for 2023; €20,000 for 2024; and €10,000 for 2025.
Accelerated Capital Allowances:
- 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. A similar scheme for accelerated capital allowances is provided for under s285C TCA 97 in respect of gas vehicles and refuelling equipment which operate using lower-emission fuels.
- The Bill extends the time period for claims under these schemes to 31 December 2024 and also amends the existing schemes to:
- prohibit equipment directly operated by fossil fuels from qualifying for the accelerated capital allowance scheme for energy efficient equipment; and
- include hydrogen powered vehicles and refuelling equipment under the accelerated capital allowance scheme for gas vehicles and refuelling equipment.
- The purpose of these amendments is to contribute to the transition towards a low carbon economy by supporting the transition to lower-emission fuels, particularly in the heavy-duty land transport sector.
- While these amendments should assist with achieving this goal, there are some broader limitations in relation to the operation of the scheme which should also be addressed. In its current format, the scheme places the administrative burden on the taxpayer to track energy savings, which has limited the use of the scheme more broadly.
Micro-generation Support Scheme
The Bill introduces a tax exemption for the first €200 of income arising to households for the domestic generation of electricity, which is supplied back to the grid.
The scheme is provided for under the newly created s216D TCA 97 and provides that a tax exemption will be available in respect of electricity generated through the use of “renewable, sustainable or alternative forms of energy” at residential premises in the State.
The scheme will apply from 1 January 2022 and run to 31 December 2024 and should provide further incentives to households to power their homes using renewable energy sources rather than traditional fossil fuels.
Ireland’s Sustainable Finance Roadmap
- While not specifically related to the Bill, the Government's commitment to further developing the area of sustainable finance, through the launch of Ireland's Sustainable Finance Roadmap, is a welcome development. It sets the scene for future, more transformative, plans in the green financing space.
- The roadmap sets ambitious but achievable targets, with a view to Ireland being a leading sustainable finance centre by 2025.
- The key commitments for the financial services sector are as follows:
- developing the skills and knowledge of the future workforce.
- building capacity and ensuring best practice in reporting and disclosure.
- establishing an innovation programme and developing new sustainable finance instruments, products and services, such as green, social, sustainability and sustainability linked bonds; and
- creating a dedicated Irish Sustainable Finance Fintech strategy.
- While the introduction of tax measures which specifically focused on the promotion of sustainable investment in the Bill would have been welcome, the recognition of sustainable finance as a key pillar of economic focus for Ireland in the coming years is a positive development.
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Whether you are concerned about the impact of the 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.
