Car buyers in Britain are currently seeing the prices of new cars falling as a result of government and consumer pressure on car manufacturers, which were found to be artificially inflating British prices. However, buyers in the Republic, where car prices are among the highest in the EU, will be disappointed to learn that similar relief is not likely to come their way. This is not because manufacturers are pegging Irish car prices artificially high, but because the Government has no plans to reduce the high rate of vehicle registration tax.

An analysis of the before and after-tax prices of cars on the Irish market shows that up to 51 per cent of what Irish car buyers pay for their new car comprises vehicle taxes. The Government charges VAT at 21 per cent on the basic manufacturer's price. It then charges Vehicle Registration Tax (VRT) at rates between 22 and 30 per cent, depending on the size of car engine, on the recommended retail price including the VAT element.

As a result many aspiring car buyers - especially those seeking upmarket marques or models - have been looking at buying abroad.

Over the past 10 years, the creation of the single European market has lifted most of the bureaucratic, legal and technical barriers to consumers wanting to import cars from another EU state. EU consumers may now buy new cars in any EU member state and pay tax in their own jurisdiction.

Despite attempts to narrow car price differences across the EU, there are still considerable pretax price differences, as evidenced by the huge numbers of British customers now buying cars abroad because of inflated prices at home.

However, Irish customers will not benefit to the same degree as their European peers. Although pre-tax prices can be lower abroad, Ireland is unique in the EU for being the only state that links its vehicle registration tax directly to a recommended retail price agreed between the Revenue Commissioners and the vehicle importers.

Based on a comparison of new car prices across EU countries by the European Commission in May of this year, an Irish buyer could have paid an invoice price of £10,920 (€13,865) for a Toyota Avensis in France. Once the buyer has brought the car over to Ireland, VAT (at 21 per cent) would first be charged on the invoice value of the car, which means the invoice price plus the cost of transport and insurance to get the car to Ireland. The transport and insurance costs would add a matter of a few hundred pounds to the bill. VRT is then calculated as a percentage of the Toyota's recommended retail price in the State - not where it was bought - which is around £18,170 (€23,071), including VRT and VAT, and not the £10,290 (€13,872) invoice price paid by the Irish buyer in France.

In total, that means the price of the Avensis bought in Ireland by an Irish buyer after all taxes is £18,950; the same car bought in France would ultimately set you back about £16,637, a saving of just over £2,000. In fact, the biggest advantage in organising a personal import arises in cases where the particular vehicle desired is not available on the Irish market.

The benefits are greater in Britain, where the only tax levied on imported new cars is VAT, which is based on the invoice price paid by the buyer overseas.

Irish motoring organisations, including the Society of the Irish Motor Industry (SIMI), the Automobile Association and the Royal Automobile Club, have long campaigned against VRT, arguing that it contravenes the Single Market principle of the free movement of goods within the EU. They argue that the Celtic Tiger and the record tax revenues being generated for the Exchequer mean that the Government can now afford to do without VRT.

"It is certainly contrary to the spirit of the single market," says Mr Conor Faughnan, the AA's public affairs manager. Mr Faughnan added that the continued existence of the tax demonstrated how unwarranted the perception was among many people that motoring organisations were manipulative and powerful. "If we were anywhere near as powerful as they say we are, this tax would have gone a long time ago."

The director of the RAC, Mr Robert Taylor, says VRT on new cars is a `tax on a tax' and an unfair burden on a motorist faced with multiple forms of taxation. "In the light of EU harmonisation, it is a regressive tax," he said. VRT was introduced in 1992 as a replacement for excise duty, which was considered incompatible with the Single Market. Yet the following year, an Oireachtas joint committee examining taxation issues as they related to the single market recommended phasing out VRT over four years. The recommendation was never taken on board.

Despite the fact that the existence of VRT has not deterred record numbers of people from buying new cars this year, the Minister for Finance Mr McCreevy appears to be coming under greater pressure to reduce or eliminate the tax in his next budget.

A spokesman from the Department of Finance confirmed that Mr McCreevy had received a lot of requests and calls from various sectors to reduce or eliminate VRT and that they would be considered. It appears that Mr McCreevy and the Government are perfectly within their rights to impose this tax, despite arguments to the contrary. Mr Colin Daly of the European Consumer Centre said that he asked for, and received, legal clarification last year from the European Commission on the legality of VRT in response to customer complaints on the issue. It confirmed that VRT was not in contravention of any aspect of EU single market legislation.

Recently, however, SIMI has begun efforts to test the legality of a certain aspect of VRT on the basis that it places a major obstacle in the operation of the Single Market. Although new cars from Ireland can be exported to the UK and other countries free of VRT, used car exports cannot get an age-related refund.

SIMI's argument is that, in the last five years, more than 200,000 used cars have been imported into Ireland with no corresponding exports, thus creating a major problem with the abandonment of older cars.

The chief executive of SIMI, Mr Cyril McHugh, says that this proposal could prove to be a "bonanza" for the Government and that it would be part of the organisation's budget submission this year, along with a call for a 2.5 per cent reduction in VRT as an environmental measure.

"The Government's commitment to Europe and the Single Market, together with the opportunity that the refund scheme presented for extra revenue by stimulating new car replacement sales would make this proposal an attractive one, with everyone winning," he said.

Sales of new cars this year have increased by a staggering 38 per cent on 1999, according to the SIMI. Given the richness of this revenue source, it is clear that the Government will continue imposing VRT on new cars for as long as possible.