LAST WEEK CABINET signed off on a cut in excise on petrol and diesel in a bid to address rapidly increasing fuel costs for consumers. 

Opposition parties and groups in the Dáil pushed the government to go further with reductions, including a reduction in carbon tax rates on certain fuels. 

It has led to a debate between Sinn Féin and Fine Gael about whether there is excise on home heating oil. 

Let’s dig into it. 

Is the tax on home heating oil an excise duty?

In an argument on RTÉ’s Today Claire Byrne last week, Sinn Féin’s finance spokesperson Pearse Doherty and Fine Gael junior minister Colm Brophy disagreed about the definition of the tax applied to kerosene.

Doherty referred to it as an “excise duty”, while Brophy insisted “there is no excise on home heating oil”. 

Fine Gael has also reiterated on social media that there is “zero” excise duty on home heating oil:

Did you know there is ZERO excise duty on kerosene?

Kerosene is the No.1 source of home heating oil in Ireland. pic.twitter.com/EK7tU109P4

— Fine Gael (@FineGael) March 10, 2022

In a statement to The Journal, a Fine Gael spokesperson this week said: “It is indisputable that there is no excise duty applied to kerosene – by far the most widely used home heating oil.”

There is a certain amount of tax applied to home heating oil. The back-and-forth between the two political parties is centred on how they define this tax. 

The home heating oil they are referring to is kerosene. The only tax on kerosene, when used as a home heating oil, is a carbon tax. But the carbon tax on this fossil fuel is considered by Revenue to be an excise.

Specifically, it is listed by Revenue as a rate of Mineral Oil Tax (MOT) under excise duty rates for energy products and electricity.

This MOT is split into two components with different rates: the non-carbon and carbon components.

Revenue Revenue

The table above is an updated list from Revenue since the changes announced by Government last week.

It shows that the non-carbon component of the Mineral Oil Tax – listed under excise duty rates – for “kerosene used for purposes other than as a propellant” (including home heating) is €00.00.

However, the total MOT rate for kerosene is €84.84 per 1,000 litres. This €84.84 comes from the carbon component – also known as the carbon tax – which was introduced in 2010.

Both the Department of Finance and Revenue, in response to queries from The Journal, stated that the carbon-component of the Mineral Oil Tax is an excise.

“The carbon component is commonly referred to as carbon tax and the non-carbon component is often referred to as ‘excise’, ‘fuel excise’ or ‘fuel duty’,” Revenue said.

“It is important to note however, that both components of MOT are excise.”

The Department of Finance also noted that the Finance Act 1999 “provides for the application of excise duty, in the form of Mineral Oil Tax (MOT), to specified mineral oils, such as petrol, diesel, and kerosene, that are used as motor or heating fuels”.

It also acknowledged that rates of MOT are published on the excise duty rates hub on Revenue’s website.

Though they acknowledged Revenue’s technical classification of the carbon tax, a Fine Gael source said there is a difference between the way ‘traditional’ excise duty – on alcohol and tobacco, for example – and the carbon-component of the MOT is applied.

They said when excise duty is applied to alcohol or tobacco, the government makes a choice to put a certain rate of tax on a particular set of products. So in the case of alcohol, wine, beer and spirits have different rates, each set by government.

The government does make a choice on the overall rate of carbon tax applied to fuels per tonne of CO2 emitted by that fuel. The current rate is €33.50 per tonne and this rate is the same for all fuels.

But carbon tax applies differently to each fuel product depending on the level of CO2 emitted by the fuel concerned. 

This means it is different for each individual fuel product because of the fuel’s CO2 emissions and not because of different rates for each fuel set by government, as in the case of wine, beer and spirits. 

This, the Fine Gael source claimed, is why the carbon tax is not an excise duty.

The European Union energy tax directive

Addressing the Dáil last week, Finance Minister Paschal Donohoe mentioned the minimum rates of excise duty that are allowable on energy products such as fuel under the European Union energy tax directive.

Current EU rules for taxing energy products and electricity are laid down in the Energy Tax Directive 2003/96/EC.

When it comes to minimum rates of tax allowed for heating and electricity under this EU directive, the rate for natural gas, for example, is 15 cent per gigajoule. For heavy fuel oil the minimum allowable rate is €15 per 1,000 kilos.

For kerosene – the main source of home heating oil in Ireland – the minimum rate of excise duty allowed is €0 per 1,000 litres.

Donohoe last week told the Dáil that amendments – tabled by opposition parties and groupings – to the government’s motion to reduce excise on petrol and diesel were not possible to implement because they would not be consistent with the minimum rate set out in the energy tax directive.

He said a 25% reduction in excise for diesel proposed by Sinn Féin, for example “would not be consistent with the minimum rate set out in the energy tax directive”.

Revenue’s updated list of excise duty rates on energy products and electricity taxes shows that the rate of Mineral Oil Tax (MOT) on kerosene used for purposes other than as a propellant (including home heating) is €84.84 per 1,000 litres,

The non-carbon component of this MOT rate is €00.00. This component of the MOT therefore could not be reduced further than 0. 

But the carbon component – otherwise known as the carbon tax – is set at €84.84 per 1,000 litres. As Revenue stated, this component of the rate is an excise.

Removing or reducing the carbon tax

Minister Donohoe last week acknowledged that Sinn Féin’s amendment proposed to temporarily remove the carbon tax on kerosene.

He said carbon taxation has a role to play in gradually changing the decisions that transport users and business make about their use of fuels, while also creating the resources needed for the State to invest in a lower-carbon future.

The minister acknowledged this was a “difficult case to make” at this time, but said carbon tax would be particularly important when prices are not increasing at the speed they are now.

“Particularly relevant to the debate we are having tonight is to be clear about the impact of the increases in carbon taxation on the changes in fuel prices,” he said.

“For example, this month one year ago the average petrol price was €1.36 per litre. As the House is well aware, in many places that price has gone over €2 per litre over the past 24 hours.

“The additional taxation due the increase in carbon taxation is 2 cent. While I acknowledge the increase in the price of energy at the moment is having an effect for many people, the change in carbon taxation is having a small impact on the total price. It is a very small contributor to changes that are under way.”

Donohoe did not argue that the European directive precluded a reduction in the carbon component of the MOT to €0 per 1,000 litres. The directive does not distinguish between the carbon and non-carbon components of the rate. 

Revenue confirmed to The Journal that in complying with the Energy Tax Directive’s minimum rates, “total MOT rates are taken into account”.

This means the total MOT on kerosene could still be reduced further or removed entirely.

The tax was introduced as part of the Finance Act 1999 as amended, which is the same piece of legislation amended by the government to reduce excise on petrol and diesel last week. 

If the government had accepted Sinn Féin’s motion as part of changes to the legislation last week, the carbon component of the Mineral Oil Tax on kerosene for home heating would have been reduced to €0 per 1,000 litres. 

The government has been adamant it will not reduce the carbon tax on fossil fuels – in fact increases are on the way – because it is a key pillar of the Climate Action Plan aim to halve emissions by 2030. 

The Programme for Government also provides for a ten-year trajectory for carbon tax increases to reach €100 per tonne or carbon dioxide by 2030. 

Speaking to The Journal, Sinn Féin’s Pearse Doherty said the aim of his party’s amendment was to temporarily remove the carbon tax on kerosene until Budget Day in October this year. 

“We were not arguing for a reduction of excuse on any of these fuels on a permanent basis,” he said. “This is just to deal with the inflationary prices at the moment, it’s a temporary measure.”

Doherty said his party believes in taxes like the carbon tax that aim to change behaviours, but he said “it should only happen when there are alternatives available that are affordable at that point in time.”