EU ponders ‘polluter pays’ car tax proposals

MOTORISTS could be paying car tax linked to the amount of CO2 emissions from their vehicles within a few years under proposals being considered by the EU.

The European Commission has signalled it wants to reform car taxation systems in Europe in a move that could result in a 20% reduction in car prices through such measures as the abolition of Vehicle Registration Tax (VRT) in Ireland.

Driver organisations and consumer groups have welcomed proposals that would see the gradual phasing out of vehicle registration taxes, as well as the introduction of a refund scheme for cars moved between countries.

They have also indicated their support for the eventual implementation of a vehicle tax system based on CO2 emissions.

Motoring organisations, like the Society of the Irish Motor Industry and the AA, claim VRT represents a form of double taxation on people buying cheaper cars abroad and importing them into Ireland.

Irish motorists have called for the removal of the tax, which can add up to 30% to the cost price of a vehicle.

However, the Government has resisted pressure to reduce or abolish VRT largely because it is a valuable source of revenue. VRT contributes around €800million to the Exchequer per annum.

Despite the existence of double taxation, one in nine of all vehicles registered in Ireland in 2004 is a used import.

Although Irish VRT appears to run contrary to EU legislation on the free movement of goods and services, the European Court of Justice recently upheld that a similar tax in Finland did not breach EU directives.

However, the Commission is looking to reform the system in the belief that taxes like VRT distort the functioning of the internal market.

“It is not acceptable that individual EU citizens and car manufacturers have to face tax obstacles such as double taxation when they move cars from one country to another within the internal market,” said Taxation Commissioner Frits Bolkestein.

The Commission claims the existence of 25 different tax systems for passenger vehicles in the EU has resulted in a variety of obstacles, including double taxation and excessive administration, as well as extra costs and time losses.

It also believes the level of CO2 emissions caused by passenger vehicles - which account for over 23% of all greenhouse gas emissions - will increase without the introduction of a “polluter pays” form of taxation.

The Commission is considering the abolition of registration taxes over a 10-year period, combined with the immediate establishment of a refund system to boost the competitiveness of the European car industry.

It maintains that such a measure can be introduced in a manner which is also tax neutral in terms of revenue for the Exchequer.

SIMI president Louis O’Hanlon said VRT leads to Irish consumers paying some of the highest post-tax prices for new cars in Europe, even though pre- tax prices are below the EU average.

Mr O’Hanlon called on Ireland’s newly-elected MEPs to make the phasing out of VRT and the introduction of a refund scheme a priority issue.