Car makers prepare to steer around new taxes

THE MOTOR trade is bracing itself for a major shake-up in Vehicle Registration Tax (VRT) and motor tax rates, as the Government awaits the outcome of a public and industry consultation into changing the way the cars we buy are taxed at purchase and in use. But before such changes have been finalised, car makers are looking at ways to steer their customers around any rise in costs.

Michael Nugent, sales and marketing director with BMW Ireland, said at the launch of the new 3 Series saloon last week that “it looks as if the VRT regime is going to be changed, and probably it needs it. We think that the Government took a very brave step four years ago to change the tax regime over to a C02 basis, and yes, you could say that we profited from it, but it was win-win for us, for our customers and ultimately for the Government in terms of lower vehicle emissions. Our engineers were able to create these cars that still have high performance but with low emissions.

“Now, whatever change is coming down the line, all we say at this point is that we want it to be fair. Let’s stick with the bands system for tax, because the whole industry is very heavily invested in that, but whatever change is made, make it the same for all so that the playing field remains level. We’re really prepared to fight our corner on this one.”

BMW is not alone in trying to ready itself for any changes to either VRT or motor tax, but it will be the most high-profile case if the consultation leads to dramatic changes in either or both taxation systems.

Whether the Government decides to increase the current rates across the board again, or goes for a more selective approach that takes into account engine capacity or power, or the physical size of the vehicle, it seems unlikely BMW, or any of the other premium brand players (or their customers for that matter) will be too harshly affected, even if that is the intention of such changes. For instance, the new BMW 320d EfficientDynamics has lower C02 emissions than a Ford Focus 1.6 TDCI diesel, yet it comes with a 2.0-litre, 160bhp engine.

Almost any change can be circumvented.

In Belgium, the tax system was changed to take account of the power of the engine. So BMW merely made special versions of its models for the Belgian market, detuned to have lower power outputs, dropping them below the tax threshold. Customers could then simply buy the car, then return to the dealer for an upgrade to bring the engine up to its original power levels, thus neatly sidestepping the tax. And it's not just BMW. "All the manufacturers of powerful cars have done this for years in Belgium to avoid extra taxes," says Jos Gryseels, a writer with Autokanaal.bein Belgium.

The problem for the Government is simply that automotive engineers, and their colleagues in the marketing department, are just much faster at reacting to changes than the civil servants who make the tax systems.

While you could certainly not blame the current appetite for changes to the tax regime solely on BMW, the success of its 520d model since 2010 caused consternation in government circles. The idea that someone could buy a €45,000 luxury saloon and pay the same rate of motor tax as someone buying a Ford Fiesta rankled with more than a few.

The first tax change came in last year’s Budget, with a hike across the board in motor tax, but a hike that was most painful to those paying the lowest rates of Band A and Band B tax. The 520d had been targeted, and hit.

“Does it really matter to a 5 Series buyer if motor tax goes up by €50 a year? Probably not,” agrees Mr Nugent. “€100? Probably not, again. But above that, the emotive nature of motor tax comes into play. People have a very strong reaction to it in Ireland, probably much more so than a tax on the purchase price.”

In amongst these preparations for a new tax system, there is a warning. The price of motoring, especially with the loading of new taxes on the price of fuel (keeping it artificially high at the pumps at a time when the wholesale price of oil is well below its recent peaks) has increased steadily to the point where Irish drivers are driving less to spend less.

Spend on vehicle maintenance and upkeep has also fallen, and while there is a direct loss there to the exchequer in terms of VAT receipts, there is also a more insidious long-term issue of cars on the road being in a poorer state of repair; something that has ramifications for safety.

It’s a fact Mr Nugent uses to fire a final warning shot across the Government’s bows. “We have come to a point where Irish drivers have just stopped spending money on their cars. They just won’t spend any more.”

And whether it be because of the effect on fuel duty, VRT, motor tax or VAT receipts, or a lowering of the safety standards of cars on the road, the Government can ill-afford not to take heed of such things.