EU proposes overhaul of car taxes

The European Union head office proposed an overhaul of taxes levied on cars in the 25-nation union today, calling for the charges to be focused on the amount of pollution they emit.

It said its proposal, which will need the backing of EU governments, “would not harmonise tax rates or oblige member states to introduce new taxes,” but rather, shift taxes to ensure higher carbon dioxide emitting cars – like sports utility vehicles – are taxed more.

The EU said simpler taxation criteria would also make it easier for the transfer of cars between EU countries.

Laszlo Kovacs, EU commissioner in charge of taxation and customs issues said there was “strong support” for overhauling automobile taxes in Europe.

He said registration taxes slapped on passenger vehicles “give rise to double taxation for European citizens and create fragmentation within the European car industry.”

The European Commission proposes to phase out those registration levies and restructure annual circulation taxes over a period of five to 10 years.

It said a new system would ensure car owners are not double taxed for exporting or transferring their vehicles from one member state to another.

The Commission wants to do away with different national criteria on which the taxes are based, replacing these with a single levy based on the amount of miles driven and the amount of carbon dioxide the vehicle emits.

Under the plan, the Commission said charges based on emissions should make up 25% of the registration and circulation charges by the end of 2008, and should account for half of such tax revenues by 2010.

Current vehicle taxes are based on numerous national criteria. Countries like England and Germany tax engine size. Others like Sweden and Denmark impose high registration taxes for all cars, while Italy and Greece put low taxes on small cars and higher taxes on larger ones.

Car prices across the EU continue to vary widely due to different tax systems and consumers seeking cheaper prices in other EU countries are usually stymied because they have to pay double registration charges, both in the country of purchase and when they bring it back to their country of residence.