Of cars and taxes

It can be argued that the purchase of a vehicle is the second largest capital outlay by an average Maltese household, preceded only by the amount it has to fork out to acquire a residence.

The cost of buying a vehicle in Malta is one of highest in Europe, mainly due to the taxes with which such a purchase is burdened. Over the years, consumers were given the impression that imminent political and policy developments would lead to a diminishing of this burden. I was thinking of buying my first car at the time when VAT was first introduced in 1994. There was a huge whispering campaign, which had started before the 1992 election, saying that the change in the taxation system would lead to a lowering of vehicle prices since import duties would not be levied any longer. Duties were actually removed, but duly substituted by an equivalent vehicle registration tax. To add insult to injury, vehicles imported from outside the European Union became more expensive with the way in which the system was implemented.

A similar whispering campaign accompanied the debate on European Union membership, with many people thinking that joining the Single Market would give them access to a wider choice of vehicles at more affordable prices. Not only did this not happen, but the authorities have of lately enforced the payment of the vehicle registration tax in an unprecedented manner.

That is why the debate in the European Parliament on a Commission proposal to phase out registration taxes and substitute them with a pro-environment tax regime comes at the right point.

Let me first make my personal position clear. I do not support a system whereby we worsen our already heavily polluted environment by encouraging haphazard importation of vehicles. What I want is a fair deal for consumers while at the same time linking vehicle emissions directly to taxation, thus leading to more environmentally-responsible purchases.

Currently, the greatest injustice is being suffered by Maltese returned migrants, who are essentially being double taxed. Prior to EU membership, returned migrants were granted a concession on the payment of the registration tax, something which has now been discontinued by the Maltese authorities.

I personally even know of cases where these returned migrants were handed information in writing by Maltese embassies stating they would need to pay only a 16 per cent tax on their vehicle upon their return, only to arrive in Malta and being served with a much saltier bill. I am aware that at least one such case has been referred to the Ombudsman.

The Commission proposal is a sensible one since it envisages the phasing out of the vehicle registration tax from all EU member states over a period of between five and 10 years. Furthermore, all those who have already paid the said tax would qualify for a partial refund according to the book value of their vehicle once the system is introduced. The registration tax would be replaced by an annual eco tax which would be paid in the country where the vehicle is used. Such a system widens consumer choice, facilitates price comparison and tangibly reduces the capital output for buying a vehicle.

A central part of this proposal is the way in which the refund system would be calculated in order for it to be fair with consumers.

Reports suggest that the Maltese government, alongside the British and Danish ones, is resisting this proposal which requires unanimity in the European Council.

The Maltese government should review its position because the proposal would have a neutral effect on its budget in the medium and long term. This is because revenue from the registration tax would be substituted by the eco tax. At the same time, the switch would be beneficial to consumers and would encourage the purchase of more environmentally-friendly cars that would be subject to a lower level of taxation.

If properly implemented, this will turn out to be a fair and proactive system.

Mr Muscat is a Labour member of the European Parliament.

www.josephmuscat.com