Car dealers are warning the price of buying cars could go up by €1,000 from next July.
The Department of Finance's Tax Strategy Group is advising Minister Paschal Donohoe to radically change motor tax to clamp down on emissions from diesel and petrol vehicles.
It says Ireland is a "convenient outlet" for used diesel cars coming from the UK at present.
"There is the potential for the cars to increase between €700 and €1,000 depending on the car," said Brian Cooke, Director General of the Society of the Irish Motor Industry explaining how the proposed changes to motor tax would push up the cost of purchasing cars.
"There is a CO2 element which is already in the Irish taxation system and the proposals in relation to the changes there would add €500 to €600."
Another element, based on knots - which is related to air quality could cost between €200 and €400, Mr Cooke added.