Taxing matter of new VRT system

Having been stung by botched changes to road tax in the past the motor industry is cautious about the Government’s ‘open’ approach to raising more revenue from the trade

THE IRISH MOTOR trade has given a cautious welcome to Minister for Finance Michael Noonan’s call for a consultation process on the upcoming changes to the Vehicle Registration Tax (VRT) system, which is currently under way.

However, reports this week of proposed measures in the 2013 budget suggest a bitter pill ahead. Among the main proposals for new taxes for 2013 outlined by Government negotiators to the EU Commission and International Monetary Fund late last year was a hike in vehicle and motor tax as part of a reform to revert from emissions-based charges.

Despite this, there is a feeling, within the trade, that the Government, in spite of its need to dramatically raise the amount of revenue it takes from the motoring sector, is prepared to listen to the wishes of the car importers and sellers. The consultation process runs until March 1st, and any interested party can submit their thoughts on the matter.

Caution is, however, well placed. The Irish motor trade has been down this road many times before and, generally, it has ended up on the receiving end of some very poor decisions.

Most recently, in 2008, when the Fianna Fáil-Green Party coalition changed the VRT and motor tax system from the old one (based on engine capacity) to the current one (based on Co2 emissions) the one thing the motor trade said it needed was a six-month lead-in to a new system that would come into force in January, just as the peak selling period for new cars kicked off. Instead, the changes were announced in January, enforced in July and generally made what turned out to be the last decent year for car sales in Ireland much poorer than it should have been. And that’s without mentioning the disastrous effect it had on the second-hand prices of older cars, stuck with the old, higher tax rates.

James Brooks, managing director of Kia Motors Ireland, reckons things are going to be different this time around. “I know the Taoiseach is talking about open government, and we’ve already met with Pat Rabbitte a couple of times, and the fact that we actually got to meet him and he told us that he is open to suggestions on lowering carbon emissions; I’m very encouraged by that. So long as the adjustment is done at the right time, and isn’t too extreme.”

The Government will have one simple objective though; to raise the revenue from VRT, which in 2007, at its peak, brought more than €1.4 billion in receipts. In 2009, that plummeted to €375 million. It’s not all bad news for the Government or the exchequer. The introduction of the carbon tax on fuels has kept the take from forecourt petrol and diesel sales buoyant. Revenue was taking a combined total of €2.5 billion in 2009 (including excise duty and VAT) and in 2010 (the most recent figures available), thanks to the carbon tax, this had increased to almost €2.7 billion.

Not all in the car trade will be going into these consultations in a cheery frame of mind, though. Fiat Ireland managing director Adrian Walsh says: “There has clearly been no thought given to all of those people living in remote areas, those driving back and forth every day from commuter towns, or those families with young children where there is no other suitable transport alternative. The Government has also shown little regard for the thousands of jobs that the motor industry supports all over Ireland both directly and indirectly.”

Michael Nugent, sales and marketing director with BMW Ireland, which probably benefited more than most car makers from the 2008 changes, thinks that any major changes now would be problematic: “Having finally got it right, the VRT system shouldn’t be tampered with as this would cause another fundamental shift in residual values which the industry and the motorist just cannot afford.

“We accept that the Government needs to review every income stream possible to get the country back on its feet and that the motor industry has a role to play. Simply increasing tax rates isn’t the solution. We believe the best way is to get more people purchasing cars and not to put further impediments in their way. It is vital that the Department of Finance and the Revenue Commissioners liaise fully with the trade before making any decisions.”

There are a couple of other salient points too. First off, the changes to the motor tax system laid down in the 2012 budget are a serious volte-face to the encouragement to purchase carbon-efficient vehicles, even if the cost of motor tax is now at an historic low, for bands A, B and C anyway. Any changes that come out of the new consultation will doubtless be more of the same, and it will still be the least well off families that will continue to pay the highest rates of tax, as they are mostly stuck with buying older, pre-2008 cars that don’t qualify for the Co2-based bands.

And with the trade very keen to see a change in the number plate system, to create a “twin-peak” sales effect with a second plate change in each year (similar to the system in the UK), there are worries that the Government might negotiate stringent VRT and motor tax rises in exchange for something that’s only of benefit to the motor trade, not to the consumer at large. Hopefully, the consultation will involve more listening than dictating on the Government’s part, and that this time the car trade can get its points across so that any future changes won’t have the same effect on resale values, sales, tax revenue and jobs as previous upheavals have had.