The European Commission is considering abolishing car registration tax and other fees, which it believes distort the single market.
At present the exemption on free-market movement of goods exists in relation to taxation on modes of transport allows Ireland to impose vehicle registration tax (VRT) at rates of between 22.5 per cent and 30 per cent.
When VAT is included, the total tax take on a new car can be as much as 73 per cent of the pre-tax price, according to figures from the Society of the Irish Motor Industry (SIMI).
This means that on a Ford Mondeo 2-litre LX with a retail price of €26,310, VRT and VAT accounts for €10,922. On a Ford Focus 1.4 LX, the tax take is €6,653 on a retail price of €19,515.
"The general gist of the proposal . . . is that those taxes not environment-related, like the vehicle registration tax, should be transformed and replaced with road taxes and fuel taxes," according to Mr Tilman Lueder, a Commission spokesman.
He said the EU executive would consult governments, companies and other institutions until September 10th on the plan and then propose legislation. It would have to be approved in negotiations between governments and the European Parliament.
While the parliament may give its approval for such a move, any changes must be passed by the Council of Ministers, in this case the Finance Ministers who have continually resisted changes to registration tax, given its financial importance to several governments.
According to the Minister for Finance, Mr McCreevy, VRT was worth €820 million to the Government last year, out of a total of €3.2 billion paid in taxation by motorists. His department declined to comment on the latest move by the Commission.
Mr Cyril McHugh, chief executive of the SIMI, is doubtful of any imminent change to the current situation. He has questioned the timing of the initiative and the period of consultation, coming as it does during the main holiday period and with a deadline for completion just as most people in the industry are coming back to work.
He also doubts whether any change would cause a dramatic reduction in car prices here. "The proposals are more about replacing the current registration systems, with perhaps a tax based on CO2 emissions, rather than abolishing them," Mr McHugh says.
The Commission has also said it might launch an investigation into the excise tax which Poland levies on imported second-hand cars. The Polish government imposed the tax to protect local car-makers by curbing big imports of used cars, but analysts say the regulation breaches EU law, because the new EU member-state does not levy the tax on second-hand cars bought in Poland.