Ireland in discussions with EU on fuel VAT reduction

Ireland is in discussion with the EU over a possible reduction of VAT on fuel prices Tánaiste Leo Varadkar has confirmed.

"We are looking for some more flexibility so that if we need to, we might be able to do more to help people to absorb the very serious and severe increases in energy prices that have happened in the last couple of months," the Tánaiste told RTÉ

Both the EU VAT and Energy directives were "quite strict", he said, and that under the rules if Ireland were to reduce its VAT rate then when it was raised later it would be pegged at a higher rate.

He said the government could reduce VAT on fuel from 13.5% to 12%, but a 1.5% decrease would not be sufficient.

"So, we're looking for a bit more flexibility around that," he said.

Earlier this month, Taoiseach Micheál Martin said they were prevented from reducing fuel costs any further than they had done. 

"We can't bring it down by 25 cent for diesel, because of the energy directive," Micheál Martin said. 

"The reduction in excise for diesel of 15 cents is the most that can be provided when taken in conjunction with the diesel rebate scheme," Mr Martin said, in context with the EU energy directive. 

He also said if you reduce the VAT rate of 13 and half per cent, you run the risk of it going higher once the crisis eases. He said it was important to protect their derogation on energy rates which they want to protect in the long-term, "which keeps the VAT rate lower than it otherwise would be".