Motor tax could double under EU plan

MOTOR tax rates could increase by 100% under a reform of car taxation systems planned by the EU.

The European Commission has predicted that annual motor tax may increase dramatically in many EU countries, including Ireland, as it moves towards the introduction of "polluter pays" taxes and the abolition of other forms of vehicle taxation.

It estimates that the annual motor tax for a 1.4 litre car in Ireland, which costs €292 at present, could soar to €585 per annum over the next decade.

A working paper prepared by the Commission's directorate general on taxation in Brussels has also calculated that car-owners across Europe face varying increases in annual motor tax, ranging from 0% in Germany, France and Britain to over 1,300% in Portugal.

However, the predictions are based on just one of several options under consideration by Brussels.

EU leaders believe that higher annual motor tax rates will be necessary to compensate governments for the abolition of such taxes as the Vehicle Registration Tax (VRT).

A draft directive prepared by the Commission proposes:

The total abolition of VRT and similar taxes across Europe within a 10-year transitional period.

The immediate establishment of a VRT refund system to apply over the next decade.

The restructuring of existing car tax systems on a "polluter pays" basis.

In Ireland, average VRT is estimated at €3,737 per vehicle, even though it can add on €8,000 to the cost of a family saloon.

EU data published last week revealed that heavy taxes on cars are pushing Irish family car prices up to 50% above the EU average.

The European Commission has signalled that it wants to remove such obstacles to the functioning of the internal market in relation to the free movement of goods and services as well as boost the European car industry. It believes the reform of existing motor tax systems, including the abolition of VRT in Ireland, could lead to a 20% reduction in car prices.

Motoring and consumers' organisations have been long-term opponents of VRT on the basis that it represents a form of double taxation on people buying cheaper cars abroad and importing them into Ireland.

The Commission believes the removal of such taxes will help the price of new cars to converge.

It also maintains that such reforms are necessary in order to meet its environmental commitments on reducing the level of C02 emissions.

However, it is advising individual governments that they should not attempt to use the reforms to increase overall tax revenue.

Annual motor tax rates in Ireland have already increased by 5% over the past year. VRT contributes around €800 million to the Exchequer per annum, while all vehicle taxes account for over 10% of all Government revenue one of the highest levels within the EU.

The Commission has stressed that, under the proposed reforms, the tax burden should be related to usage rather than the cost of buying vehicles.