EU Commission proposes abolition of car registration tax

Maltese drivers may profit from lower prices when buying a new car if a proposal submitted by the European Commission yesterday finds the support of the governments of the 25 member states, although other taxes would be imposed instead.

The Commission has proposed that the car registration tax, imposed on consumers when buying a new car, should be put to an end over a number of years and substituted by a new system based on car emissions and circulation.

Malta currently imposes one of the highest registration tax regimes in Europe on imported cars. Cars imported in Malta are taxed between 50 and 75 per cent of their importation value depending on their engine cylinder capacity. Apart from this, imported cars are also subject to a 18 per cent VAT on the amount of registration tax payable.

According to the proposed directive, car registration taxes should be abolished over a transitional period of five to 10 years.

The Commission said that the member states' revenues would not be affected if the gradual abolition of registration taxes is accompanied by a parallel increase of annual circulation taxes and, if necessary, other taxes. A gradual change would protect car owners from dramatic devaluations of their cars and the transitional period would also allow those member states applying high registration taxes, such as Malta, to make the necessary structural changes to their car tax systems.

The Commission is also proposing the introduction of a system whereby a member state would be required to refund a portion of registration tax, pending its abolition, where a passenger car that is registered in that member state is subsequently exported or permanently transferred to another member state. This measure would aim both to prevent the double taxation that occurs at present and to make this kind of tax fairer by relating them to the actual use of the car in the member state concerned.

The Commission is also suggesting the introduction of a CO2 element into the tax base of both annual circulation taxes and registration taxes. This would mean a tax differentiation on the basis of the number of grams of carbon dioxide emitted per kilometre by a car. By December 31, 2008, at least 25 per cent of the total tax revenue from registration and annual circulation taxes should derive from the CO2-based element of the taxes and this figure should rise to 50 per cent by 2010.

When presenting this new proposal, Taxation Commissioner Laszlo Kovacs said that following the extensive consultations that the Commission has conducted with stakeholders, there is strong support for the abolition of registration taxes which give rise to double taxation for European citizens and create fragmentation within the European car industry.

"There is also considerable support for tax measures that would encourage consumers to select more environmental friendly passenger cars."

Commission sources told The Times that although in principle many member states support this initiative one has to await the reactions of the member states. They commented that normally, member states do not like changing taxes with the possibility of reducing revenue.

In total, 16 out of 26 member states apply some sort of registration tax on new cars. Luxembourg, Germany, Sweden, the United Kingdom, France, Slovakia, Czech Republic, Estonia and Lithuania have no car registration taxes.