It's taken five years, but Brussels is finally sitting up and taking notice. Lloyd Gorman reports on the prospects for VRT.
After years of vigorous yet frustrating lobbying efforts against Vehicle Registration Tax (VRT) by Irish consumer and industry groups, recent developments suggest the European Union may yet hold the key to free Irish motorists from the controversial tax.
While registration tax on private cars is applied on the sale of cars in the majority of EU countries, at up to 30 per cent, the rates levied on Irish motorists are amongst the most punitive.
Three key moves by the EU in the past few weeks offer encouragement to Irish motorists and their Continental counterparts that their complaints are justified.
On September 9th the European Commission's taxation minister, Frits Bolkestein, announced a package of proposals to reduce VRT levels imposed on motorists in the short term combined with longer term ambitions for its total removal.
The EU Commission cites registration tax as an obstacle to the free movement of passenger cars within the Internal Market and suggests in its place a new system of annual road taxes and fuel taxes.
Announcing the proposal the taxation commissioner said: "I am determined to tackle the tax obstacles individual citizens and car manufacturers within the Internal Market arising from 15 different systems of car taxation within the EU. All too often people have to pay through the nose when they move a car from one country to another."
VRT serves neither the interests of consumers or industry while making a mockery of the principle of a single market, he continued.
"The car tax-related problem most frequently faced by private individuals is that registration tax must normally be paid a second time when a car is moved from one Member State to another without a permanent change of residence. (For example, when someone buys a second-hand car in another EU Member State to take advantage of lower prices there and brings it back to his own country or moves his car to another Member State where he has a second home and leaves it there.)
This is despite the fact that registration tax has already been paid in the first Member State and is not refunded by that Member State. Certainly in Ireland no such facility to refund VRT is on the legislation.
"From the motor industry viewpoint, the wide differences in tax systems have a negative impact on their ability to achieve the potential benefits of operating within an Internal Market, and consequently to improve competitiveness and create new jobs," he explained.
Independent research for the Commission by market research bodies into vehicle taxes lent credence to Bolkestein's view.
Cross-border constraints such as double taxation if moving from one state to another or specific administrative expenses if direct importing cares are clearly distorting free market conditions, the study stated.
Apart from Ireland, Denmark and Finland are the other two EU countries with the highest average levels of registration taxation. Member States with a large car production industry, like Italy, Germany and Britain tend to have lower VRT rates, or none at all.
An overall picture of the situation is confused by diverse system of taxes applied on car owners across Europe. Of the 15 EU Member States, ten impose a registration tax, ranging from €267 in Italy to €1,565 in Denmark.
A range of other taxes is applied, depending on the country in question. Apart from VRT, motorists can face periodic taxes on the ownership of their vehicles, taxes on fuel as well as VAT, insurance taxes, registration taxes and road tolls.
The highest level of excise duty on unleaded petrol is found in Britain and Finland while the lowest levels are applied in Greece and Ireland.
Anti-VRT interests immediately have used the momentum created by the Commission to emphasis their objections.
The Consumer Association of Ireland say they will be embarking on a new information campaign. Its chief executive Dermott Jewell said: "If this proposal goes ahead there will be a real need for information so that the public can understand the changes in prices."
The Dublin-based European Consumer Association which has also received a number of complaints added their voice to the lobby against the registration tax.
Mary Denise, marketing manager for the ECA said: "We totally endorse the Commission proposal. It is totally unfair that consumers are forced to pay a double tax like this".
The interests of consumers and manufacturers have rarely been shared on the same platform and to the same extent as they are on the question of VRT.
However no one is in doubt that any proposals to change or abolish VRT will meet stiff political resistance. The Society of the Irish Motor Industry (SIMI), chief executive Cyril McHugh, following a keynote address to the European Congress Car Retailer Association last week in Frankfurt, said: "It is important to realise that this is a consultative document only. It was due to be published before the Summer but opposition from within the Commission itself meant there was a delay in its appearance. This resistance is the nub of the issue. It will have to go before the Council of Ministers who will be able to object to some of its stronger recommendations. And then it has to be passed by the European Parliament."
This process could mean that it will take years to come into force he argues, even though some of the proposed measures could actually benefit the Government and the car industry in Ireland.
"If in the short term the Minister allowed used cars to be exported the car industry and Government revenue would benefit. The number of second hand cars in the country would not be allowed to build up and they would be replaced by new models, from which the Government would still collect VRT. It would also bring an element of certainty into the sale of cars in Ireland, benefiting the industry and exchequer funds," argued Mr McHugh.
Despite the growing calls for action on VRT the Department of Finance held its ground on the issue, saying the Minister had made his position clear in the Dáil earlier this year.
"While I will, as is normal, be considering VRT and all other taxes in the context of the forthcoming Budget and Finance Bill, you will be aware that VRT is an important source of revenue for the Exchequer, especially given this Government's strategy of reducing other taxes such as income and corporation tax."
However, this message came with a warning. "If the suggestion is that the review should lead to a VRT reduction in rates and loss of revenue this would need to be borne in mind. Receipts from VRT in 2001 were in the region of €790 million. To recover this amount of money in alternative taxes would require, for example, a 36 cent per litre excise duty increase in the price of petrol or an increase in the standard rate of income tax of over two percentage points."
The independent study on car taxes for the Commission described as "remarkable" the link between VRT and the public in Ireland and Greece.
Despite fears of political and bureaucratic procrastination over proposed changes two further decisions within the EU have served to strengthen the case against VRT.
Just last week, the Commmission referred Greece to the European Court of Justice over its tax scheme on vehicles registered in other Member States which are used temporarily in the country by residents of other EU countries.
Greece applies a scheme to owners of vehicles registered in other Member States that requires immediate payment of registration taxes as if the vehicle were in permanent use in Greece.
According to the Commmission: "the severe penalties provided for by Greek legislation in the event of non-compliance with certain procedures regarding the temporary use of the vehicle to be incompatible with Community law."
The legal action against Greece, held that these taxes are an obstacle to even the temporary free movement of cars, either for personal or professional use.
Four days later the Luxembourg-based court ruled against the Finnish Government, which it said was applying VRT as a form of double taxation.
The decision followed an action taken by a Finnish citizen who imported a used Mercedes from Germany back into Finland after a few weeks of purchase. The Finnish authorities calculated the tax he had to pay by comparing the car to a new model of the same make with similar specifications.
The court found that this tax constituted a form of double taxation as it amounted to more than the level of tax charged on a used car already in Finland.
"The taxable valued used to apply the tax on the registration of vehicles must be defined in the same way for importing used cars as for new vehicles registered in the national territory," the court said.
As we face another EU referendum, it seems the Commission plans to balance out its recent decision to ensure pre-tax prices are competitive across the EU, with moves to harmonise the taxes imposed on these vehicles.
When, and if, it all comes into operation, Irish motorists may at last be equal to their European counterparts, at least when buying their car.
FACTFILE:
Irish car taxes are among the highest in Europe. We pay:
• 20 per cent VAT
• VRT of between 22.5 and 30 per cent depending on engine size.
• Annual road tax between €116.82 and €1,015, depending on engine size.
VRT RATES: 22.5% on 1,400cc or less; 25% on 1,401cc to 2,000cc; 25% on 2,001 cc or greater.
VRT DATES:
July 18th: EU announces major changes to car sales market aimed at increasing competition and balancing out differences in pre-tax car prices between member states. When fully implemented it will mean that prices will vary between states largely on the basis of Government taxes.
September 9th: EU taxation commissioner Frits Bolkenstein announces proposals to reduce VRT levels in the short term combined with longer term ambitions for its total removal.
September 16th: EU Commission takes legal action against Greece for the punitive way it applies its registration tax scheme. The Commission claims its unfair on non-Greek EU citizens temporarily bringing a car to Greece.
September 20th: Finnish motorist Antti Siilin, who imported a used Mercedes from Germany, wins a case against the Finnish government over its VRT Scheme. The authorities calculated the tax he had to pay by comparing the car to a new car of the same make with similar characteristics. The court found that the tax was a form of double taxation because it exceeded the tax charged on a used car already in Finland.
How the tax works
Vehicle Registration Tax (VRT) is included in the price of new ccars sold here. However, for motorists importing new or used cars the question arises over how the tax is charged. Buyers who make a bargain deal abroad would clearly appreciate if the tax was charged on the purchase price, but the Revenue Commissioners are not so generous.
Known as the Open Market Selling Price (OMSP) it takes no account of the price paid for the car, but rather is based on an estimate of what the exact same car would fetch on the Irish market.
The figure is based on industry reports and the Revenue's own calculations.
It's generally accepted after ine years of operating the tax ,the Revenue's estimates are generally accurate.
So, for example, a 1998 Mercedes C180 classic estate with 52,000 miles would cost €19,750 here. In Britain the same car would cost £10,195 or €16,140.
That would mean a VRT bill of €4,000. The total cost to an Irish buyers would then be over €20,000. - Michael McAleer