With an unprecedented number of used cars being imported from Britain, there is a growing fear that without the introduction of a Vehicle Registration Tax (VRT) refund scheme for exported used vehicles, the country is facing a flood of second-hand cars that will seriously undermine used car values.
This fear is further exacerbated by the fact that dealers are finalising preparations for the traditional New Year car buying rush that will see thousands of used cars come onto the market over the next few months as car buyers trade-in their current cars for new 06 models.
At a recent meeting with the Minister for Finance, Brian Cowan, representatives from the motor industry highlighted this fear and called on the Minister to introduce a VRT refund scheme in the forthcoming Budget.
Such a move would, they say, open a safety value that would allow dealers to export used cars.
"If there is a serious surplus of used cars here, then the used car values will be seriously undermined," explained Alan Nolan from the Irish motor industry representative body, SIMI.
The motor industry argues that not only is the absence of a VRT refund scheme putting motorists and dealers here at an unfair disadvantage, but it is also contrary to the express will of the European Commission.
A VRT refund scheme would allow dealers and private car owners to claim back the residual value of VRT on a car when it is exported and thus bring the asking price of the car in-line with its market value in Britain - the largest market for used Irish cars outside of Ireland. Currently, because there is no refund scheme, dealers and private individuals exporting cars must try to recover the residual value of the VRT in the asking price of the exported car.
This makes exported Irish cars uncompetitively priced, as the residual VRT adds as much as 30 per cent extra to the value of a used car.
As a result, there are very few second-hand cars being exported from Ireland.
However worryingly, there has been a 100 per cent rise in the number of used cars imported into the Republic over the last 12 months. With such a large number of second-hand cars entering the country, the fear that an excess of used cars will begin to undermine values is growing.
"The absence of a VRT refund scheme on the export of used vehicles is grossly inequitable as it places Irish dealers at a huge disadvantage in relation to UK dealers who can freely export used cars into Ireland," explained Nolan.
"Our call for a VRT equalisation measure has the full backing of the European Commission, which wants to see all registration taxes phased out, but in the meantime wants the immediate introduction of a VRT refund scheme.
The Commission sees the absence of such a scheme as a gross interference of the free movement of goods and we would have to agree. "Dealers here are at a huge disadvantage and this is distorting the Irish used car market considerably."
The European Commission has long argued that, while it wants VRT eventually abolished, a refund scheme needs to be introduced immediately in countries, such as Ireland, that impose a registration tax.
Of the EU countries that apply a registration tax, only Denmark offers a refund on used cars that are permanently exported. Denmark applies the highest rate of registration tax of any of the 25 EU countries, charging up to a massive 180 per cent of the value of a new car in VRT.
Despite its high VRT rates, when the Danish government introduced its refund scheme, there was not a massive rush to export cars from the country that its government feared.
As a result, the financial impact to the Danish government was small. The European Commission is proposing that other countries follow Denmark's lead.
It points out that any losses in tax revenue as a result of the scheme's introduction would be minimal. "The tax loss would be only about 0.1 per cent of total taxation," says the EU's report on motor taxation. "Therefore, there would be little need to compensate the revenue loss through increases in other taxes." This is an argument the motor industry here agrees with, in fact, it claims that the Irish exchequer would benefit from a refund scheme, as would motorists.
"A refund scheme would mean that a better deal could be given on trade-in of used cars," explained Nolan. "In addition, VRT from additional new car sales would outweigh the cost of providing the VRT refund for all second-hand cars exported."
The Department of Finance confirmed that it had received a call for a VRT refund scheme but would only say that it is considering the request.