VRT could be replaced by new EU tax

MOTORISTS received good and bad news yesterday - costly Vehicle Registration Tax (VRT) is to be phased out, but it will be replaced by another charge.

The EU wants VRT gradually eliminated over the next decade in a bid to ensure a true European single market for vehicles.

But the Government, which last year earned €1.15 billion from VRT, is opposed to losing such a major revenue stream.

Speaking in Dublin yesterday, European Commissioner for Taxation Laszlo Kovacs admitted the Government was strongly against the elimination of VRT, as well as any attempts to harmonise corporate taxes across the EU.

On the topic of VRT, Mr Kovacs said: “The idea is to eliminate (it) in a period, not in one step, of five to 10 years.”

But Mr Kovacs added that rather than completely removing VRT, it would be integrated with an annual circulation tax so individual governments would not suffer a major loss in revenue.

“Owners of the car would not pay it in a lump sum with the purchase of the car, but year-after-year as a part of the annual circulation tax,” he said.

Department of Finance officials told an Oireachtas committee recently that road tax could jump from an average of €400 to €960 a year if VRT was eliminated.

Sixteen European Union member states operate VRT taxes which vary from a couple of hundred euro to thousands.

Mr Kovacs said: “For the car manufacturers it results in a very, very fragmented market. They simply cannot benefit from the single market, with 450 million consumers... in the case of the car market it simply doesn’t function.”

Mr Kovacs, who met with Finance Minister Brian Cowen to discuss the issues, said the commission’s proposals on altering vehicle tax would benefit European citizens, industry and the environment.

From 2008 onwards, he said, a quarter of the combined car tax would be based on the carbon dioxide emissions of the engine.

On wider tax issues, he stressed that the commission had no ambition to propose the harmonisation of corporate tax rates across the EU.

But he said the commission intends to begin working towards a common consolidated corporate tax base to present a legislative framework by 2008.

“There are too many tax measures which encourage firms to invest and operate domestically rather than in another member state.”

The commissioner said he did not believe Ireland’s economic success was solely attributable to favourable corporate tax concessions the country has offered since the 1960s.

“The majority of member states are supportive or at least open to this idea, while some member states, including Ireland, have expressed serious reservations.

“If necessary we will propose the adoption of the common tax base by those member states who are interested under the enhanced co-operation mechanism because we cannot allow some states to hold others back.”