Tax-dodging boat-owners

Updated 17 April 2012: see final paragraph.
Updated 15 February 2012: see penultimate paragraph.

This appeared originally as a posting on 8 December 2011; I have copied it to a page to give it that great poetic property, permanence, and I have added one further consideration that has struck me.

I wrote here about the method that the Revenue Commissioners employed to implement new rules on the rate of duty to be paid on diesel used for private pleasure navigation.

For reasons best known to themselves, Irish governments allow farmers to use cheap (“rebated”) diesel in their tractors, on the grounds that the tractors are for off-road use. And for many years boat-owners with diesel engines were allowed to use the same cheap diesel. The same arrangement applied in the UK and in Belgium. The diesel (“marked gas oil”) was coloured, latterly red in the UK and green in Ireland.

The EU decided some time ago that the rules should be standardised throughout Europe and that boats used for private pleasure navigation should not be allowed to use the subsidised fuel. The UK and Ireland sought and received successive derogations allowing them to delay the introduction, allegedly so that they could make appropriate arrangements. The governments did nothing about it. Accordingly, when the European Commission got fed up and told them there would be no more derogations, they had no plans ready and were faced by well-organised gangs of well-to-do boat-owners anxious to continue enjoying their subsidy.

The Irish authorities decided that boat-owners could continue to buy the marked gas oil, at the rebated rate, but that they would have to make a return to the Revenue Commissioners at the end of each year, showing how much diesel they had bought and how much Mineral Oil Tax they were paying to make up the difference. The December 2011 version of the document and forms is here (PDF). Mineral Oil Tax is intended to cover “the difference between the auto diesel and marked gas oil rates at the time of purchase of the oil”.

The revenue raised

I asked the Revenue Commissioners how much they had taken in from boat-owners in 2009 and 2010. They said that they got €169,895.51 in 2009 and €140,929.12 in 2010.

For most of 2010, the rate of Mineral Oil Tax was €449.18 per 1,000 litres (it was slightly higher from 8 to 31 December 2010, a period when there would have been little pleasure-boating). That means that duty was paid on 313,748 litres of diesel.

So how effective is this system? On what proportion of sales for private pleasure navigation is the tax being collected? Revenue has no idea and has no way of getting any idea because

Mineral Oil Tax on marked gas oil (MGO) is collected at the point of release for consumption from tax warehouse or upon importation to the State and, for the vast bulk of MGO, no information is available at that stage as to the ultimate destination or use of the oil, as most of it goes through a distribution network before it reaches the final consumer.

So let’s see if we can help to provide a rough estimate. According to the RNLI

A diesel engine burns about 1 gallon per hour for every 20hp. So a 90hp diesel would use about 90/20 = 4.5 gallons of fuel per hour. For those who prefer to work in litres then simply multiply the horsepower by 2 and then divide by 9. So a 90hp has an estimated consumption of 2 x 90/9 = 20l/hour.

Let us suppose, for the sake of argument, that the average pleasure craft has a 40hp diesel engine (which is what my 1960s cruiser had, so this is probably an underestimate). That would use two gallons or nine litres per hour. So the 313,748 litres of diesel on which Mineral Oil tax was paid would have kept one cruiser going for 34,861 hours.

On the other hand, if there are 10,000 pleasure craft in Ireland, with diesel engines averaging 40hp, then they are claiming to have cruised for an average of three and a half hours each in the whole of the year 2010.

The contribution of the inland hire fleet

In fact, though, the inland hire fleet (yes, hire boats are covered) may have accounted for the vast bulk of the 313,478 litres. Hire boats are used more intensively than private boats. So let’s assume that 300 hire boats are used for 20 hours a week for 10 weeks a year: that’s 60,000 hours a year. And if they’re averaging say 5 litres per hour (less than the RNLI suggests, but let’s assume they travel slowly), that’s 300,000 out of the total of 313, 748 litres on which the tax was paid.

A tentative conclusion

I suspect therefore that there is significant underpayment of the Mineral Oil tax.

No: that’s far too weak. I suggest that most private boat-owners are dodging this tax. The collection system clearly does not work and I suggest that it should be abolished: boat-owners should pay the full (auto diesel) price.

Update 15 February 2012

Some folk objected to my contention that most boat-owners were dodging the tax, so I asked the Revenue Commissioners how many returns they received for each of the two full years for which the scheme has been in operation. Payment of Mineral Oil Tax for 2011 is not due until 1 March 2012, so I did not ask about that year. Bear in mind that the owner of a hire fleet would make a single return covering the entire fleet. Here is the response:

[…] the number of returns for 2009 (received in 2010) was 38 and for 2010 (received, near end of 2010 or in 2011), the figures was 41.

I rest my case.

Update 17  April 2012

The Revenue Commissioners tell me that

[…] there were 22 returns received by 1 March 2012 for 2011, amounting to €53,398.58 MOT [Mineral Oil Tax] on 141,503.29 litres oil.

That’s an average of 6432.1 litres each, which is a lot; I suspect that much of the total came from the hire fleet, with less than twenty private owners making returns.


14 responses to “Tax-dodging boat-owners

  1. Pingback: Tax-dodging boat-owners redivivus | Irish waterways history

  2. Brian you are mis interpreting the facts.

    Firstly many boats are filling with white diesel, this is particularly true of dedicated non hire bases. It is also true of some large coastal marinas.

    The other factor is that the last return in early 2010 for 2009 was the first one and was very badly communicated leaving large sections of users without any idea of the requirement,

    The concession was to facilitate certain area of the country where green diesel is the only supply available,such as harbours in the west of ireland. Otherwise the system is unworkable as simply converting to mandatory white would leave many boats particularly in the west and in certain inland places without any access to fuel. the problem being that the hire fleet have no reason to change to white.

    The solution ,which has the support of the IFA is to remove marked gas oil from the Irish market, providing commercial users with annual or VaT like bi monthly rebates of these. This would allow a complete changeover to white ensuring that boaters can retain access to commercial facilities.

    To simply engage in a vilification of boaters over a scheme that’s only gaining awareness etc is mischievous and misleading. As more are more people understand the requirements and further both afloat and the IWAI have engaged in publicity campaigns. Equally it is a concession also to the unique situation in Ireland that stems from a situation that pertained since accession to the EU.

    A man of your calibre would surely see the issues involved in a arbitrary changeover, rather then a misinformed rant.

  3. I seem to recall that the difficulty of getting supplies of road diesel was one reason for retaining an entitlement to use marked gas oil. If that difficulty has been overcome, I am delighted to hear it.

    I am delighted to know that IWAI is attempting to encourage boat-owners to become tax-compliant. I would just point out, though, that Ireland (which was not unique in this matter) had several derogations, providing periods during which the new requirements might have been explained.

    You say that “many boats are filling with white diesel”. That may very well be so, but I would like to have some evidence for the assertion: how many boats, what their total consumption was and how you got your figures. As it stands, yours is a broad and unsupported assertion. Perhaps you could list the waterside pumps supplying road diesel to pumps and tell me how much each of them sold to boats. With that (or some similar) information we could begin to reassess the extent of tax-dodging. I am perfectly prepared to consider evidence pointing to a conclusion other than that which I reached, but I can’t change my conclusion on the basis of a mere assertion.

    I note what you say about poor communication. In 2010, 38 returns (for 2009) were received. In the following year, perhaps as a result of an IWAI publicity campaign, the number of returns had increased — to 41. Given that there were 8143 craft registered on the Shannon in that year (not all, of course, with diesel engines), and 577 permits were issued by WI for other waterways in the same year, and given that there are pleasure boats on other waterways and on the sea, I think that I am justified in concluding that most boat-owners have been dodging the tax. Indeed I might interpret your remarks as agreeing with my conclusion but offering an excuse or explanation for non-payment.

    My understanding is that at least some of the hire firms would be delighted to supply only auto diesel, that they find the present system a nuisance. I too (like — absit omen — the farmers) would like to get rid of marked gas oil; I think the present system is ridiculous both on land and on water. But the fact remains that there is a legal requirement that has been ignored by the vast majority of owners of pleasure boats. I point that out; you say that I am vilifying, mischievous and misleading, none of which affects the soundness (or otherwise) of my argument. I have presented my information, my sources and my deductions whereas you have presented only unsupported assertions.


  4. Brian, the system is in its infancy and Revenue themselves particularly in the runup made no attempt to flag the issue( ie the loss of the derogation) nor then explain the subsequent procedures, have you seen any newspaper adverts explaining it , no . The vast vast majority of boaters had no idea the derogation was ending and still have no idea of the subsequent requirements, even those that are aware are often confused as to the exact procedures. Most PAYE people never have any requirement to submit any kind of return to Revenue and confusion abounds.

    There is widespread ignorance of the new rules, is compounded by the fact that suppliers haven’t understood it either. No ones condones evasion, but to assume that the small number of returns is an indication that boaters are aware of the requirements and intentionally avoiding making returns is not justified either.

    Removing access to green diesel would cause significant issues, not to mention a distinct possibility that some users would continue to fill with marked gas oil, given that tanks will be contaminated for years to come. Hire bases have little incentive to switch to auto diesel as the current system gives them a 12 month cash flow advantage. Equally stringent insurance and environmental rules mean that installing additional dual pumping arrangements would be prohibitively expensive. We are already in near monopolistic supply situations on the inland system , for example there is in effect one pump for the whole of lough Ree, from north of Banagher to Roosky. Forcing a switch to auto diesel without a taught through process would result in severe supply difficulties and encourage non legal solutions. There is also the huge issues around the coast away from major boating centres.

    The solution is obvious , remove marked gas oil from the marketplace ( which would reduce smuggling ) and provide rebates to those that are entitled to them.

    In the absence of such systems we have an somewhat imperfect system, which to the credit of Revenue implicitly acknowledges the difficulties of the situation.

    I fully accept that significantly greater compliance is required ( and record keeping in general from all suppliers) and a large scale boater awareness scheme is neccessary. What I questioned is your assertion is that poor returns suggest an intention to not comply.

    Furthermore using Shannon registration numbers as an indication of boat numbers is massively flawed. The system is well known to completely over state actual boats in service, ( and often used by tourist agencies to their benefit) given that boats go on to the register rarely are removed. Furthermore the vast majority of recent registrations ( in 2009, 2120) are from ancedotal evidence, petrol sports boats and smaller ribs, lake boats ( not to mention an inflow of jet skies from other banned areas) etc, the net population of medium to large cruisers has decreased significantly, due to enforced sales ( almost exclusively abroad) and repossessions. Very few of these are removed from the register. Any visit to typical large boat marinas will confirm such empty spaces. Furthermore there is significant anecdotal evidence that many boats are not being used or are engaging in small trips to reduce operating costs. This being particularly true of large twins.

    A more accurate indication of actual usage and hence consumption of diesel would be to examine lock movements. These show a massive drop in activity on the Inland system, with private boat movements down to levels not seen for years. Hence it’s reasonable to assume that many boats are not purchasing diesel at all, as they aren’t really on the system anymore. Conversations with several fueling operators would suggest as much as well. The rapidly increasing cost of diesel, the poor fuel efficiencies of older boats and the state of the populations decline in wealth would suggest that this trend is set to accelerate.

    As you point out the number of returns are low. But the reasons are many and jumping to conclusions that there is a widespread malicious intent to defraud Revenue, is in my opinion entirely unjustifed and as I said mischeavious. A more thoughtful and considered piece would have discussed the issue rationally, examined the problems and highlighted solutions, rather then leaping to “sound bite” style conclusions.


  5. I quite agree that the Revenue Commissioners bear much of the blame. In fact, I see their scheme as almost an insult to the European Commission: a paper scheme that looks to me like an attempt to do the bare minimum that could be claimed to be compliant. I will consider making a complaint about Ireland’s performance to the European Commission.

    Now, we seem to be agreed on what the ultimate solution should be: auto diesel for everyone, rebates for those who need it. I have, as I said, some information to suggest that some hire firms would be quite happy to change over and that they think the current system is ridiculous. I found, incidentally, that there is already a rebate system for certain trips by certain coach operators, although I haven’t kept the link to the document on the Revenue site.

    A lot of your message seems to be about three points: the extent of non-compliance, the reasons for such non-compliance and the self-esteem of boat-owners.

    You say that the numbers of Shannon-registered boats cannot be relied upon. I agree, and indeed have made the same point in my article for the forthcoming issue of Afloat. However, I use the numbers only to give an indication of the orders of magnitude by which the number of returns made differs from the number that should have been made; I’m not trying to provide exact figures (which would be impossible to do). If, say, five thousand returns had been made, I would be hesitant to claim vast underpayment because I could not say, with any great confidence, whether the number of diesel-powered boats was (say) greater or less than ten thousand. But when the number of returns is two orders of magnitude lower than the number of boats on the Shannon, in other words about 1% of what it should be for inland boats alone, then I think I am justified in claiming that the scale of underpayment is enormous.

    You are wrong about what the Shannon lock passage figures show. I haven’t got complete historic figures, but here is what I have got.

    Year, Total number of passages, Number of private boats (n/a means not available, ie I haven’t got the figure to hand)

    1998, 74642, 16256
    2002, 76962, n/a
    2003, 76172, n/a
    2004, 69610, n/a
    2005, 68521, n/a
    2006, 67366, 24634
    2007, 66942, 24554
    2008, 58787, 22628
    2009, 53969, 24705
    2010, 50706, 24395
    2011, 45156, 21442

    Note that the 2011 figures will be reflected in the Mineral Oil Tax returns being made by 1 March 2012; they are not relevant to the returns for 2009 and 2010. The pattern shown up to 2010 is quite clear: a huge fall in the numbers of passages, but that fall is concentrated amongst the hire boats: after an increase from 1998, the figures for passages by private boats are remarkably consistent from 2006 through 2010. So, sad though we might be to learn of the departure of many twin-screw cruisers, that has not affected the figures for the years I was writing about. And, again, I make the point about orders of magnitude: even the fall in the number of lock passages between 2010 and 2011 is not such as to support the contention that there are less than 40 private boat-owners left in the country.

    Next to the reasons for non-compliance. I see that I myself wrote an article in Inland Waterways News in 2003 about the ending of the derogation and there were other mentions over the years. I understand that IWAI has many thousands of members, most of whom own boats, but the number of returns seems to be two orders of magnitude less than the number of IWAI members. I am conscious, too, that boat-owners tend to discuss boating matters, and I see that your website and forum have several mentions of the subject. I find it difficult to believe, therefore, that only about 35 private boat-owners (subtracting the IBRA hire fleets from the number of returns) were aware of the new rules.

    But I’m not really interested in whether boat-owners don’t pay because they dislike paying tax, because they didn’t know they should do so or because the dog ate their Mineral Oil Tax return. I don’t think I mentioned motivation although, as an Economics graduate, my first assumption is that people will act in their own interests rather than in those of the state. So if you have a tax system in which enforcement is extremely unlikely, and compliance carries the risk that someone might ask how you afforded a large boat (or why a company ostensibly owns a large boat), a rational economic actor might opt to keep the money and ignore the tax. That’s why I think it’s a bad system and should be discarded: only auto (full price) diesel should be used.

    You, not I, used the word “defraud”. I simply established, reported and commented on the fact: the vast majority of boat-owners are not paying the tax and that, to me, means that they are dodging paying the tax. You might, I suppose, complain that I should have used a different term, like “non-tax-compliant boat-owners”: it may be that their self-esteem is damaged, or their feelings are hurt, as a result of being called tax-dodgers. But I can’t see that you have any other legitimate grounds for complaint. If you can show that the level of non-compliance is lower than I think it is, I would welcome the information, but (if you’ll forgive my saying so) you haven’t done so so far. Let us, however, rejoice in the fact that improved compliance will allow us to help the state to recover from its present difficulties; paying more tax will become a cause of satisfaction for us all.


  6. Boat owners would have had to have had their heads permanently buried in their bilges not to have been fully aware of the change in duty. All of the British motor-boating press gave the issue huge publicity month after month in the two years before the axe fell.

    If Irish boat owners were smart they would buy a small quantity of green diesel, pay the duty and claim that was all they needed for the season. Then again, as you say, maybe for many the problem is explaining away the boat, not the low fuel usage…..

  7. A mojor point being missed here is that Green exists for use in vehicles used primarily off road. If you hire a diesel mini digger to carry out work in your “leisure” garden you put green in it don’t you? You pay VAT on the green from your local fuel depot so once you don’t use it on the public road you’re within the law. Similarly boats are not used on the road system therefore it is reasonable to think you could use green in it regardless of EU nonsense. One could argue that for sea going vessels even the VAT is not payable as they may use the fuel outside of Irish waters

  8. Why are you inventing imaginary laws? The actual law is quite clear: diesel fuel for private pleasure navigation is not to benefit from rebates. bjg

  9. Pingback: Join the elite while saving the nation | Irish waterways history

  10. Pingback: Mineral Oil Tax returns for 2013 | Irish waterways history

  11. Hmm, 10,000 pleasure craft. Are there really that many ? Probably 70% of those are not moved, 40% are not used at all. I wonder how the state/EU view livaboards. Are they leisure craft if they are the only/main residence of the owner ?

  12. Nobody knows how many there are, but note the number registered on the Shannon and then think of the numbers around the coast.


  13. Most of the boats around the coast are sailing vessels and almost only use their engines for getting in and out of the harbours.

  14. So they won’t have to pay much tax.

    Which makes me wonder quite why the Irish Sailing Association is so worried about the measure, to the extent of talking complete crap about it.


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