The lower rate of tax applied to diesel fuel when compared to petrol costs the Exchequer roughly €400m a year, according to the Tax Strategy Group.
The taxes on diesel are almost 10 cent per litre lower than those levied on petrol, with this so-called Diesel Excise Gap often subject to criticism by environmental groups.
The TSG said the gap represented €354m in foregone revenue last year, and €423m in 2019.
It said the Government had a number of options if it wished to close the gap, which could be done over a three to ten year timeframe.
Closing the gap in three years would require increasing the non-carbon tax on diesel by four cent each year, resulting in an addition Exchequer yield of €147m each year.
Closing the gap in 10 years would see the rate rising by around a cent a year, resulting in €44m extra tax revenue each year.
The TSG said full equalisation would see a 60 litres of diesel cost drivers an extra €8.56.
The group also looks at options for phasing out the diesel rebate scheme, which allows businesses and professional drivers to claim back some of the cost of their fuel.
More than €38m was paid out in rebates last year, according to Revenue.
The TSG said the scheme could be phased out by a gradual reduction in the price cap applied, a decrease in the repayment rate or an increase in the minimum price above which claims can be made.
It is likely that Ireland's vehicle tax system may shift to one based on weight rather than emissions in the medium to long-term.
There have been increased calls for the size and weight of vehicles to be reflected in the tax system, as larger vehicles take up more road space and create greater safety issues for pedestrians and cyclists.
Belgium, France and Norway have all recently introduced changes to their vehicle taxation systems that factors in vehicle size.
The Tax Strategy Group says that research shows a strong correlation between larger vehicles and emissions.
That means that Ireland’s current tax system already applies a higher charge on larger internal combustion engine vehicles.
However it would not cover larger and heavier electric vehicles – even though they tend to be less efficient in the amount of energy they use.
The TSG says that, as the transport sector moves more towards lower emissions vehicles, the tax base will be eroded unless changes are made.
This, it says, could involve the phasing in of a weight-based system.
In France, ICE vehicles that weigh more than 1,600kg are charged €30 per excess kilogram – on top of the standard rate of vehicle tax.
TSG suggests a similar system could be introduced here, applying to ICE vehicles initially before being expanded to battery-powered vehicles.
A higher weight threshold could apply to electric vehicles in order to account for the weight of their battery, too.
However it says such a policy change would require "significant technical work and considerate lead in time for Revenue".
