The Government was told yesterday that it should scrap Vehicle Registration Tax (VRT) and integrate it with annual motor tax within the next decade.
European Commissioner for Taxation and Customers, László Kovács, said he wanted to eliminate registration tax across the EU within five to 10 years.
In Dublin to meet the Minister for Finance, Mr Cowen, Mr Kovács said the tax was unfair to carmakers, as well as creating problems with double taxation for consumers.
He wants to roll motor tax and VRT into one, arguing this will allow member states that apply the tax to regain any tax take lost in scrapping the registration tax.
This argument is, however, unlikely to convince Mr Cowen, who has seen revenues from the tax soar over the past few years. Earlier this month, the Department of Finance claimed abolishing the tax would cost the State €1.15 billion per year in lost revenue. This could see the average motor tax bill rise from €400 to €960 per year, the Department said.
"It will be a hard job to convince my former colleague Brian Cowen," Mr Kovács said.
Sixteen out of the 25 EU states apply a form of VRT, with the Republic levying a more moderate rate than some. Even with this, however, the total tax (including VAT) on the average two-litre car here amounts to 76 per cent of the retail price.
Mr Kovács said his move to get rid of registration tax would also have an environmental impact, with the level of the combined motor tax to be based on a car's emissions.
The commissioner also urged Mr Cowen to support his push to harmonise the corporate tax base across Europe, although he emphasised he was not seeking to harmonise actual rates.
The Government is also against this proposal, which many see as a first step towards applying a common rate of corporation tax across the EU.
Mr Kovács rejected this argument yesterday, saying a consolidated, common tax base would increase EU competitiveness.
Mr Cowen said last night he had told Mr Kovács that harmonised tax rates were not required to ensure a level playing field for taxpayers across the union.
In a speech to the Institute of Taxation annual dinner the Minister also said that new developments in European tax policy would have a "key bearing" on Ireland's economic fortunes.
"We have seen from experience that low tax rates on capital and labour deliver jobs and growth," Mr Cowen said.
Mr Kovács wants to present the common tax base proposal as a law by 2008 under rules that would allow some States to opt out of any change. He said there were about 20 countries "strongly interested or at least open to" a harmonised tax base.
