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.