The further increase in Carbon Tax in the 2021 Budget will add significant extra costs to Farm & Forestry Contractors, according to the Association of Farm & Forestry Contractors in Ireland (FCI), in its post-Budget response. The increase of €7.50 per tonne in Carbon Tax which brought the Carbon Tax penalty for Contractors to €33.50 per tonne, will mean that Farm & Forestry Contractors suffer an unfair Carbon Tax burden of €13,455 per annum, based on a typical use level of 150,000 litres of annual diesel consumption, as the Carbon Tax now equates to 8.97 cent per litre of the total cost of agricultural diesel.
“Despite the fact that the modern machinery used by Farm & Forestry contractors also consumes costly AdBlue fuel additive to reduce emissions, our members are unable to have the benefit of the double taxation Carbon Tax relief which is provided to their farming customers,” said FCI National Chair, John Hughes. “They are also unable to avail of any rebate scheme, which has been put in place for road haulage operators,” he added, “despite these additional operating costs to lower emissions through the use of AdBlue system.”
FCI had called on the Minister for Finance to seriously consider the option of offering a zero VAT on all Farm & Forestry Contractor services or allowing a full VAT refund for non-VAT registered farmers, which can be offset by the creation of a ring-fenced fund, sourced by the many millions of Euros of unclaimed Carbon Tax credits, currently not being claimed by farmers under the Carbon Tax double taxation benefit.
“FCI believes that these funds are rightly due to the Agricultural Sector but because they are individually relatively small amounts per farm, but cumulatively large in value across the entire sector, they are rarely refunded to individual farmers. This approach will deliver Irish farming tangible buy-in value for Carbon Tax support in a more meaningful way than a mere 0.2% increase in flat rate VAT farmer refund or machinery grant schemes of the past which were targeted away from efficient and cost-effective contractor services,” said John Hughes.
“While the Budget 2021 has allocated €20 million of the proceeds of the increase in Carbon Tax to the Department of Agriculture, Food and the Marine for new environment schemes, remember this is being paid out of a total Carbon Tax contribution from Farm & Forestry Contractors of €36 million from their fuel bills,” said John Hughes. “FCI believes that on this basis any new schemes to encourage farmers to adopt lower emission forms of agriculture must now incentivise contractors rather than farmers to purchase new lower emission machinery, because it is contractors who are the ones funding such programmes,” he added.
“We cannot have a situation into the future where the Carbon Tax contributions from the fuel bills of Farm & Forestry Contractor are being used to grant aid farmers to buy machinery so as to put contractors out of business. There has been enough damage done to the Contracting sector so far with the current unfair approach to grant funding of Low Emission Slurry Scheme (LESS) that excludes contractors, that this cannot be repeated,” he added.
“Our FCI members will have no option but to pass on this substantial 28% Carbon Tax cost increase directly to our farmer customers. This will equate to almost a 14% increase for all Farm & Forestry Contractor current annual charges turnover levels of more than €700 million paid for by Irish farmers,” said John Hughes.
Farm & Forestry Contractor services provide a unique value-added component to the chain of Irish agricultural production ensuring the competitiveness of Irish agricultural production through the use of efficient and modern lower carbon machinery systems. Today, Irish Farm & Forestry Contractors now carry out 90% of the mechanisation work on Irish farms.
Despite this, Farm & Forestry Contractors remain excluded from the Carbon Tax Rebate System, (Finance (No.2) Act 2013 Edition – Part 23) which is open solely to farmers. This is despite the fact in carrying out 90% of the farm mechanisation work on Irish farms, their modern and efficient machine consume close to 350 million litres of green diesel annually valued at in excess of €262 million. This alone is 62% of the total energy bill for the entire Irish agricultural sector based on the total expenditure on energy and lubricants of €424.1 million in 2018. (Source: Dept. of Agriculture Annual Review & Outlook 2019).
Farm diesel used by a Farmer in the course of a farming trade is a deductible cost and, as carbon tax is included in the cost of that diesel, a farmer obtains a second deduction in the form of a tax credit, for the amount of the carbon tax incurred on the purchase of farm diesel. (Finance Act 2013 Edition – Part 23 – 664A Relief for increase in carbon tax on farm diesel). As the deduction provided for in this section is in addition to the deduction for the cost of farm diesel, farmers are entitled to a double deduction for the increased carbon tax they incur on farm diesel purchased on or after 1 May 2012.
The Association of Farm Contractors in Ireland (FCI), research has shown that Farm & Forestry Contractors in Ireland employ close to 10,000 people operating machines on farms. Farm & Forestry Contactors use more than 350 million litres of diesel annually (61% of total agricultural energy consumption) in carrying out this farm work and operate more than 20,000 modern and fuel efficient tractors. Contractor machines harvest 90% of the Irish silage crops each year along with managing the sustainable spreading more than 20 billion litres of slurry, as well as establishing and harvesting many different crops.
Over the period of the proposed increase in the Carbon Tax level from the previous base level of €20 per tonne to €80 per tonne by 2030, this will mean a substantial increase in fuel cost of close to €100 million. Farm & Forestry Contractors will be forced to pass on this additional €100 million cost to their 137,000 farming client customers. These farmers cannot absorb this further increase at a time of tightening margins.