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Cost of Living

EU might not give the green light on VAT reduction on fuel until May

Mary Lou McDonald has called for a 0% VAT rate for a period of time on domestic energy bills.

LAST UPDATE | 29 Mar 2022

ANY REDUCTION IN the VAT rate on fuel might not happen until May, a Government spokesperson has confirmed. 

Sinn Féin leader Mary Lou McDonald today asked the Taoiseach today to outline the timeline for a possible reduction in VAT on fuel. 

Ireland has been in discussion with the EU over a possible reduction of VAT on fuel prices, with Member States agreeing to continue to discuss further what measures could help countries reduce their VAT rate. 

Ireland has a special derogation since the 1990s which allows for a lower rate of VAT on fuel of 13.5%.

For months now, the Taoiseach has told the Dáil that any temporary cut in that rate would mean Ireland would lose its derogation, which could mean it would have to revert to the standard 23% rate once the temporary cut was no longer needed. 

Speaking during Leaders’ Questions, McDonald told Micheál Martin that she welcomed news that there had been some movement with the EU Commission on reducing VAT, asking for a clear timeline as to when those cuts might be made. 

McDonald called for a 0% VAT rate for a period of time on domestic energy bills. 

The Taoiseach said at last week’s EU Commission meeting Ireland sought “flexibilities” around the VAT rate. 

He said Ireland sought a “derogation in respect of the application of the rules around VAT directive and the energy tax directive”.  However, he did not give details or timelines on when any such reductions could be agreed or rolled out. 

A Government spokesperson has said that it is unclear when any reduction might be forthcoming on VAT, but stated that the Irish Government has been in constant engagement with the EU on the issue and the discussions are “ongoing”.  

Following last week’s EU Commission meeting, it was agreed that another meeting on energy issues such as price caps will be held in May.

The spokesperson said the matter “might conclude in May” acknowledging that the Government wants clarity on whether it can use the emergency measure. 

Last week, Tánaiste Leo Varadkar said both the EU VAT and Energy directives were “quite strict”. He said the government could reduce VAT on fuel from 13.5% to 12%, but added that a 1.5% decrease would not be sufficient.

“So, we’re looking for a bit more flexibility around that,” he said.

A spokesperson for the Government said they would continue to engage with the EU and “see what comes of it”. 

Martin said the inflation crisis is likely to be an issue until at least the end of the year, and the Government has to prepare for the medium term, such as in areas like energy security. 

Speaking during her first Leaders’ Questions as Labour leader Ivana Bacik said that while there is a move to reduce reliance on Russian oil and gas, there should not be a move towards other fossil fuels. 

She asked the Taoiseach about reports that nine LNG terminals are going to be constructed in Ireland over the coming years.

“I think that’s concerning. And I think it would be concerning to see us locking ourselves into that. Instead, we should be looking at ramping up our our capacity on renewables,” she said. 

The Taoiseach said the war in Ukraine has thrown into “sharp focus” our reliance on fossil fuels. 

“We’re still 80% reliant importation of fossil fuels,” he said, adding that gas was always going to be a transition fuel “for a long, long time”. 

Earlier today, an Oireachtas committee heard that relying on fossil fuels like natural gas or liquified natural gas (LNG) would also increase the economy’s exposure to energy price volatility.

The United States has promised to send more LNG to Europe to stabilise prices and make up for a potential loss of piped Russian supply.

Against this backdrop, the Government is under pressure to back the development of a commercial LNG import terminal in North Kerry amid heightened concern about Ireland’s energy security and energy price inflation.

However, campaigners are urging the Irish Government not to reverse its opposition to importing fracked gas from the US despite the challenges.

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Bacik also used her time for reiterate calls for the expulsion of the Russian ambassador from Ireland. 

Shortly after Leaders’ Questions, the Taoiseach confirmed to the Dáil that four senior officials from the Russian Embassy have been asked to leave the State. 

Russian Ambassador Yury Filatov is not among those being expelled but the Department of Foreign Affairs has said he was summoned to the department today and told of the decision. 

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