Vrt

Government will fight against EU proposal to abolish VRT
Daniel Attwood

An EU proposal could end many of the motor tax anomalies faced by motorists, such as the double-taxation penalty they face when they import a used car from another member state.

EU tax commissioner Laszlo Kovacs aims to prevent governments from charging a vehicle registration tax (VRT) on imported vehicles which have already been registered in another EU country. In addition, he hopes that within a decade the 16 EU countries - including Ireland - which now apply VRT, will replace it with an emissions-based tax.

Kovacs's proposal echoes that of his colleague Frits Bolkestein's three years ago. "I am determined to tackle the tax obstacles which individual citizens and car makers face within the internal market arising from 15 different systems of motor taxation," said the European Commissioner for the internal market, taxation and customs in 2002.

Bolkestein's determination was met with an equally steely determination from some countries to retain the present system.

Kovacs will now doubtlessly face similar resistance from the Irish Government, which has resolutely and consistently refused to entertain any ideas of scrapping VRT - worth over €900million this year.

"VRT provides significant revenue to the Irish economy which is used to fund vital public services," explains the Department of Finance. "If Ireland removed VRT, it would be necessary to fund this in different ways. For example, this would need in excess of a 2 per cent increase in the standard rate of tax."

With the government determined not to increase personal tax levels, it's clear Kovacs will have an uphill struggle. Indeed, the Government's refusal to abolish VRT remains firm despite calls from the EU, the motor industry in Ireland, which has long campaigned for the tax to be abolished, and its own citizens.

Despite the European Commission regarding Ireland's vehicle tax regime as going against the spirit of the EU, it cannot force the Minister for Finance to scrap VRT. However, it can put pressure on the Government, as can individuals unhappy with the system.

Ireland's VRT regime is indeed being challenged by frustrated citizens, although so far without success. One motorist recently had his legal challenge terminated after an investigation by the European Commission into Ireland's VRT policy on the importation of used cars. In a letter, the commission conceded that VRT is not harmonised in the EU, so countries may define their own taxes as long as they respect certain conditions.

The commission believes that the Government is respecting those conditions, and therefore can continue to charge VRT on imported used cars under its present system.

But, under Kovacs's proposals to the European Commission, VRT could be scrapped in all EU countries by 2015.

At present there are massive differences in the amount paid to register a vehicle, depending upon which country they are in. For example, Britain charges a minimal fixed sum, while Ireland charges a hefty percentage of the VAT-inclusive open market price of a vehicle.

Across the EU, 16 countries apply VRT, while nine have no registration tax. It's these differences which Kovacs hopes to wipe out within a decade.

"It will benefit the internal market, the environment and the consumer," Kovacs told the media on Monday. He says that VRT should be abolished and incorporated into annual road tax or fuel duty.

"Ireland is open-minded on environmental fiscal measures," said a Department of Finance spokesperson in response to the suggestion of replacing VRT with an emissions tax. "However, as with tax generally, we would maintain that vehicle taxation should stay under the remit of national governments."

With the approval of countries such as Ireland needed for his proposal, Kovacs's 10-year plan seems doubtful. However, the tax commissioner remains hopeful that his plan to scrap VRT and link a replacement tax to either fuel or emissions will go ahead.

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