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The Isle of Man Government has announced significant fuel tax increases by reducing who can use rebated “red” diesel, and the reasons it can be used. This will increase taxes and costs for affected users, especially in the construction, manufacturing and ports sectors of the Manx economy.

“This tax increase which will put further pressure on Manx businesses and increase the risk of inflation across the Manx economy,” said Michael Josem of the Manx TaxPayers’ Alliance.

Tax increasing to five times current level

Red diesel1 is a fuel intended for non-road use, and is therefore currently taxed at a lower rate. Due to its lower duty rate, there are strict legal requirements about when and how it can be used, which is why it is dyed red to help identify use.

Historically, fuel duty was intended to be a tax on road vehicles. Consequently, some non-road uses of fuel have received a rebate of the fuel duty, including so-called ‘red diesel,’ which is chemically marked and dyed red to enable law enforcement agencies to identify it and deter tax evasion. Gas oil intended for use in diesel engine road vehicles, otherwise known as ‘white diesel’ (because it has no marker or dye), has a fuel duty rate of 57.95 pence per litre. Red diesel users are able to obtain a rebate of 46.81 pence per litre, giving it an effective duty rate of 11.14ppl. This rebate will be eliminated from many users in April 2022, significantly increasing the tax on red diesel users to around five times the current tax/duty rate.

Tax Losers

Currently, a wide range of non-road users of diesel are able to use red diesel. From April 2022, red diesel may only be used by limited economic sectors, including:

  • agriculture, horticulture, and forestry;
  • heating and electricity generation in non-commercial premises;
  • maintaining community amateur sports clubs; and
  • as marine craft fuel (including fishing and water freight industries).

Consequently, many red diesel users that don’t fall into the above categories will no longer be able to use red diesel from 1 April 2022 and suffer tax increases. This means that big tax increases will be suffered by many sectors such as construction, mining and quarrying, ports, manufacturing, haulage (for transport refrigeration units on lorries), road maintenance, airport operations, plant hire, logistics and waste management

Copying the United Kingdom

Under the terms of the Customs and Excise Agreement with the United Kingdom, the Isle of Man Government is required to keep the duty rates and reliefs available on hydrocarbon oils the same as those imposed in the United Kingdom.

No publicly available information reviewed by the Manx TaxPayers’ Alliance suggests that the Isle of Man Government has made any representations to the United Kingdom opposing this tax increase.

In 2020, the United Kingdom government announced that it would remove the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022, to help meet its climate change and air quality targets. The United Kingdom Government published details in March 2021 of their proposal.

The changes mean that most current users of red diesel will need to use unrebated “white” diesel, like motorists, and reflects a tax increase of around 420% on affected Manx users.

  1. Otherwise known as rebated diesel, gas oil, off-road diesel or “tractor diesel”