Farm Ireland

Thursday 17 January 2019

Proposal to introduce VAT on fertiliser could add €35m to Government coffers

Study estimates a reduction in usage of around 33,000t per year

Fertiliser imported into Ireland last autumn was the highest in three years.
Fertiliser imported into Ireland last autumn was the highest in three years.
Ciaran Moran

Ciaran Moran

A study from the ESRI also says eliminating the zero-VAT rate on fertiliser for big farmers could help reduce carbon emissions which, although small, could have a positive effective on the environment.

If the zero-VAT rate on fertiliser was abolished for farmers, they would be more likely to spread less.

In total, across the three types of fertiliser it estimates a reduction of around 33,000t per year.

It also says applying VAT to a previously unrated good will also have the effect of boosting revenues for the exchequer. This analysis suggests that there will be a tax revenue gain of €35.14m each year.

The ESRI said this change could disproportionally affect small, struggling farmers, who are likely to be low-intensity users of fertiliser.

Perhaps an appropriate solution in Ireland would be to charge a normal rate of VAT on fertiliser, thus removing the effective subsidy, but to refund this on the basis of farm size and type.

Simulation results if a standard rate of VAT is enforced on fertiliser
Simulation results if a standard rate of VAT is enforced on fertiliser

Thus farmers would only be refunded for using the correct amount of nitrogen used, penalising them for excess usage and rewarding them if they use a lower amount than their allocation

The ERSI said both environmental and economic benefits can be accrued by making fertiliser subject to the standard rate of VAT.

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While the greatest benefit to the environment and the exchequer is to bring fertiliser up to the 23pc VAT rate, it said the implementation might be difficult, with a large majority of farmers in Ireland not VAT registered.

ESRI study examined the environmental effects of 142 existing and potential fiscal measures including reduced tax rates, tax exemptions, tax allowances and direct subsidies.

The study, which was commissioned by the Environmental Protection Agency, examines if these measures lead to behaviour changes that impact on climate change, air quality or land pollution.

It finds that while individual measures can have a relatively small impact, together they have a significant impact on the environment.

The most widespread impact is on climate change and emissions, with 98 measures having impact. The least common impact is on water, with just 23 measures having an impact. Just over half of these measures had a positive impact.

The study examines four measures in more detail to quantify their environmental impact: the difference in tax rates between petrol and diesel; VAT on fertiliser; the rebate scheme on diesel tax for the haulage industry; and the possible introduction of an air passenger duty.

The research finds that these individual measures have a relatively small effect but they combine to produce a negative effect.

For example, the combined negative effects of the transport measures suggest that total Irish carbon dioxide emissions could be reduced by 1.1pc, nitrogen oxide emissions could be reduced by 1.34pc and particulate matter emissions could be reduced by 1.47pc if the current policies changed.

The study points to the importance of considering the potential environmental impact of all fiscal policy changes, in the context of Ireland’s climate change objectives.

Edgar Morgenroth said, "The unintended environmental effects of tax breaks should be studied more carefully, as some measures have significant environmental costs. Appropriate reform of these measures could make a significant contribution to reducing Ireland’s greenhouse gas emissions and reduce local pollution."

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