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Ireland fuel temporary VAT cut to 9% May 2022; inflation at 40 year high

Temporary domestic gas and electricity cut from 13.5% to 9% until end Oct 2022; inflation hits 40 year high

Ireland will provide limited relief against fast-rising domestic fuel costs. The government will temporaryily cut VAT on domestic heating gas and electric from 13.5% to 9% between 1 May and 31 October 2022. Solid fuels and and heating oil are excluded.   There will also be additional fuel allowance support payments.

March inflation hit 6.7%, a jump from 5.6% in February. This is almost a 40-year high. Diesel and petrol prices rocketed by 46% and 35%, respectively. The central banks are now forecasting a peak of 7.7%.

EU discussing derogation for Ireland to reduce VAT on domestic fuel from 13.5% to 9%; Inflation to pass 6% due to COVID and Ukraine shocks

The Irish Taoiseach, Micheal Martin,  had confirmed that EU fellow states may permit Ireland to reduce VAT on fuel from the reduced rate of 13.5% to 12% or 9%. Ireland has already cut excise duty on petrol on 9 March 2022. He said Ireland sought a “derogation in respect of the application of the rules around VAT directive and the energy tax directive”.  However, there are no details or timelines on when any such reductions could be agreed or rolled out – but it may be delayed until the end of April.

Other European cuts on VAT on fuel and foods have been passed or are under review.

Negotiations on EU VAT Directive derogation for reduced rate

Irish VAT on automobile petrol is 23%, the standard rate. For domestic heating fuel it is 13.5%. The immediate concern on a VAT rate cut to heating fuel as a short term derogation from the EU VAT Directive is that Ireland may not later be able to return to the reduced 13.5% without penalties. Under the current rules, it would have to return heating fuel to the standard rate of 23%.  On 25 March, EU ministers agreed to Irelands request for a shot term reduction with the right to return to 13.5%.

A cut in excise duty on fuel, announced by the Irish Government on 9th March, has already come into effect. This amounted to a cut of 20 cent per litre on petrol and 15 cent per litre of diesel.

In December 2021, EU finance minister agreed new reduced EU VAT rate setting freedoms which should come into place before April 2022.

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