Any attempt to tax homeowners generating solar electricity on their roof could lead to people thinking it was “not worth the trouble”, according to Department of Finance officials.
The cost of collecting the tax would also have been disproportionate to what Revenue would actually net from householders, noted a submission to Minister for Finance Paschal Donohoe.
The submission recommended that householders – who from this September will be able to sell excess electricity back to the National Grid – should be given a €200 tax break or “disregard” each year.
Up until now, the extra power generated by homeowners with solar went back to the grid, with no return available.
The department submission said there was a clear “market failure” in getting people to sign up for the installation of panels when compared to the UK and EU.
It noted strong evidence that the cohort of people fitting panels to their roof was “dominated by middle- and higher-income earners”.
The submission said a scheme that rewarded householders for selling excess energy, as well as available grants for installation, would help to increase lagging uptake.
About 3,000 households are expected to benefit from the scheme in its first year of operation with an ambitious target of 55,000 in the future.
Depending on the number of panels installed, most people could expect to be paid anywhere between €85 and €255 each year, the submission stated.
A €200 tax disregard could be applied and this would cost the exchequer a maximum of just €290,000 in its first year, it added. This could rise to €5 million annually if ambitious targets for solar-power installation are reached over the coming years.
“The actual cost is likely to be significantly lower than the maximum potential cost as few participants would receive as much as, or more than, €200 a year.”
The Department of Environment had said the €200 tax “disregard” would completely cover the likely income for 95 percent of homeowners who have solar, meaning no tax bill for them.
Officials warned any move to tax what they earn could be a “barrier to entry.”
“If an exemption was not granted (comparable exemptions are in place other countries such as the UK and Australia), it may be that citizens would view the prospect of having to deal with the administration of declaring and paying tax on such small amounts as not worth the trouble, and as a result would not participate in the scheme.”
Climate obligations
Officials also argued there would be a “signaling” benefit from a tax relief scheme on microgeneration. They said it would demonstrate the commitment of the Government to meet its renewable and wider climate obligations.
It also argued that any tax break should only apply to bill-paying occupants of principal private residences and should not apply to trading income.
The officials recommended a three-year “sunset period” for the proposal so that it could be reviewed in 2024 to see if it was effective.
In a letter supporting the creation of the tax disregard, Minister for the Environment Eamon Ryan said it should be expected that people would start installing more solar power in the years to come.
h/t Rúnar O.
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