Vehicle tax update

One leit motif of the European Union membership campaign was that we would join a single market with no tax barriers and thus obtain cheaper prices for consumers. Cheaper car prices were the most quoted examples. Rumours on how the price of cars would fall once the country joined the EU were louder than whispers. It was basically a re-enactment of 1994 when people were given the impression that the prices of vehicles would be axed with the removal of duties and their replacement with a lower VAT rate. People were then taken for a ride since any potential savings were quickly eroded by a new vehicle registration tax.

Since Malta joined the EU, not only has the internal market not materialised in this sector, but we have a substantial number of people who are worse off because of an irrational policy adopted by the Maltese government. A case in point is that of Maltese returned migrants. Before membership, these persons used to pay a reasonable amount of tax to register in Malta a vehicle they bought during their period of residence abroad. Now, the government and the ADT have decided to scrap this system and are instead asking these returned migrants to pay the vehicle registration tax in full.

To add insult to injury, I have also been informed about cases in which Maltese embassies abroad told the returning migrants that they would not need to pay the tax in full, only to find a different situation when arriving here.

Of course, there is also the case of the rest of Maltese people for whom sourcing a vehicle from abroad is being made prohibitive and impracticable, and also those foreign nationals wishing to register their vehicles in Malta. All these cases merit due consideration.

This is why the report debated and approved by the European Parliament's Economic and Monetary Affairs Committee could not come at a better time. The report signalled its approval to a Commission proposal to scrap all vehicle registration taxes, which are applied in different ways across member states. The Commission wants registration taxes to be phased out concurrently with the introduction of an emissions tax payable in the country where the vehicle is used thus making the place of purchase or registration practically irrelevant. Those who would have already paid a registration tax would be refunded according to the book value of their car.

The Economic and Monetary Affairs Committee stated that such a system can be devised in a manner that it is revenue neutral in the medium term, meaning that state coffers would not suffer unduly.

Would this be a case of robbing Peter to pay Paul?

Not really. The proposed system has a number of inherent advantages if it is implemented properly. First of all, it would bring down the capital expenditure involved in buying a car, thus decreasing the need to resort to credit facilities. At the same time, it increases transparency in prices and makes the sourcing of vehicles from other countries a feasible alternative. Most importantly, it would encourage the purchase of smaller and more environment-friendly vehicles as they would be subject to a lower tax rate.

It goes without saying that the dynamics of the system need to be looked into to ensure that the change does not result in undesired social effects. That is why I put forward amendments to the proposal stating that stakeholders, including consumer organisations, should be fully and regularly involved in what should be a transparent system determining residual value for refund purposes. Furthermore, the scales used for refunds should be based on objective criteria that need to be duly publicised and updated.

The Economic and Monetary Affairs Committee approved both amendments as well as a third one which I also put forward saying that "member states are strongly urged to refrain from imposing double taxation in the case of registration tax; particular consideration should be given to the case of EU citizens returning to their country of origin after spending more than two years in another member state".

The report was adopted with a large majority and will now move on to the next stage of debate. Nevertheless, this is an issue where Parliament can only signal its position on the Commission proposal. It is the member states that need to reach unanimous agreement on such an issue.

The Maltese government, for one, is reportedly against such a change.

Mr Muscat is a Labour member of the European Parliament.

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