Christian Pullicino wrote:
I was reading with interest the article on The Times regarding the car registration tax ruling in Poland. I would like to enquire if pressure is being made on the Maltese authorities to review the tax system in Malta. In my opinion the government taxes heavily these products and should make a creative exercise to lower such a tax. On the other hand, I understand the revenue implications the government would face. However, investigating new sources of income, such as taxing vacant property, would level out the losses incurred.
Claire Bonnici also asks:
Can you tell me more on what is happening on the EU's car tax ruling with regard to second-hand cars? Also, what position have the Maltese authorities taken on this issue?
These are just two of several queries that I received on car registration tax on second-hand cars.
Barely two weeks ago, the European Commission opened infringement proceedings against Malta because of the manner in which it imposes car registration tax on second-hand cars imported from the EU.
It appears the Commission is claiming that Malta is in breach of EU law because the way it imposes tax on second-hand cars discriminates between second-hand cars imported from the EU and similar cars already registered in Malta.
Note that the proceedings were started with respect to second-hand cars imported from the EU. We are therefore not talking about new cars and not about second-hand cars imported from outside the EU.
The move tallies with at least two recent rulings by the European Court of Justice on this issue. It therefore came as no surprise and it was only a question of time until one of the many complaints that Maltese and other EU citizens have been filing in Brussels contesting car registration tax in Malta surfaced at the top of the Commission's in-tray.
More specifically, the Commission appears to be claiming that the discrimination lies in the charging of a minimum amount of tax on second-hand cars imported from the EU regardless of its real value. Charging a minimum amount of tax often means that no matter what the value of the car is, an established amount of tax would be payable. All the while, similar cars of roughly the same age and value already registered in Malta would have a residual tax incorporated in their value which is likely to be markedly lower than that slapped on a newly-imported second-hand vehicle. Hence the discrimination.
According to reports, the Commission also appears to be contesting the manner in which the Maltese authorities value second-cars imported from the EU, in that this does not seem to be sufficiently transparent and does not give sufficient guarantees for consumers to object to valuations made by the authorities.
The infringement proceedings involve three stages, the first of which was triggered with this first move on this issue by the Commission. The matter is not yet in court and one must now await the official reply of the Maltese authorities on the matter.
Without pre-empting this reply, it stands to reason that once the European Court of Justice has already ruled on very similar cases, there is little chance that the prevailing Maltese situation can be justified under EU law. This means that an exercise must be undertaken to establish how the current regime can be reviewed to bring it in line with EU law.
The question is how this shall be done and whether this exercise will necessarily lead to a reduction in tax on second-hand cars.
On this score it must be clear that the EU can only intervene in these matters to the extent that the tax in question is applied in a discriminatory manner. It is not able to intervene simply to state that a tax is too high or too low. This must be clear. It is therefore up to the Maltese authorities to determine how this revision will be done and the ultimate rate of tax that they will apply - and they are free to do so provided they remove the inherent discrimination that exists.
This means that the revised car registration tax or any other different tax that replaces it may not necessarily be lower. As the reader rightly points out, one has to appreciate that the Treasury nets a great deal of revenue from car registration tax - some Lm25 million a year, it appears - and it must therefore recover most of this revenue from somewhere. Having said that, it is also clear that the current tax levels on cars are inordinately high by any measure and if a way could be found of revising them downwards this would indeed be welcome.
One way of eliminating the discrimination is by bringing down the tax on second-hand cars to the level of similar cars already registered in Malta. However, this is likely to imply a hefty loss of revenue and may therefore need to be accompanied with a corresponding rise in other taxes on second-hand cars, such as on the annual car licence fee.
Moreover, any move on second-hand cars is tricky because it can trigger a greater shift in sales from new to second-hand cars. To prevent this, a review of the system applied on second-hand vehicles may need to be accompanied with a simultaneous review of the regime imposed on new cars as well.
Either way, the current system will need to be reviewed. And given that the authorities may face claims for the reimbursement of taxes collected in breach of EU law, the revision is also urgent.
Readers who would like to ask questions to be answered in this column can send an e-mail, identifying themselves, to contact@simonbusuttil.eu or through www.simonbusuttil.eu.