Government should use EU directive to reduce solar equipment VAT, says sector body

The Government should take advantage of a new European Union directive to reduce or eliminate VAT on solar equipment to unlock the renewable energy sector’s potential and achieve its climate targets, the Irish Solar Energy Association (ISEA) has said.

Last month, the Government increased its target for solar capacity to 5.5 gigawatts by 2030, up from the previous goal of 1.5-2.5 gigawatts in a bid to accelerate the reduction of carbon emissions across the economy.

On Monday, the ISEA, the representative body for the Irish solar industry, said reaching Ireland’s climate ambitions will require a “dramatic shift towards renewable electricity” and a “significant contribution from solar energy”.

With that in mind, it said Budget 2023 should include “sensible steps” to support the industry, including reducing or eliminating VAT on solar equipment in line with the recent EU directive 2022/542.

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The standard 23 per rate of VAT currently applies to the supply of solar panels. But papers drawn up by the Tax Strategy Group in advance of Budget 2023 indicated that following the bloc-wide tax directive, a reduced rate can now be applied to the supply of solar panels for use on “public and other buildings used for activities in the public interest, or on housing and private dwellings”. The lowest rate that can be applied is now zero per cent, the Group said.

“This would reduce the costs of a standard household rooftop solar system by over €700 and encourage more householders to start generating their own green energy,” the ISEA said in its pre-Budget submission.

It has also called for the Government to and encourage farmers to make their land available for solar farms by removing a “quirk” the Capital Acquisitions Tax (CAT) regulations, which currently acts as a “significant barrier”.

“Agricultural Relief gives an exemption on CAT that allows farming families to inherit farmland without exorbitant tax bills,” said ISEA chief executive Conall Bolger, “However, despite solar land still being suitable for various farming purposes including grazing, farmers cannot avail of this relief if more than half their land is used for solar panels.”

He said: “This simple update to the tax code would deliver an immediate impact and benefit to both the agriculture and solar industries.”

Overall, Mr Bolger said 2022 had been a “pivotal year” for Irish solar. However, “the industry will need further commitment if we are to meet the government’s targets”, he said.