Registration tax and car renewal

Urban Development and Roads Minister Jesmond Mugliett opened the Motor Fair and could not avoid touching on the subject of taxation of used car imports.

I presume that the figures enumerating the new and used cars/vehicles (2004-2006) mentioned in the minister's speech are up-to-date and accurate and I also presume that they may include commercial vehicles.

My sources (National Statistics Office, Transport Statistics 2006, page 74) are what I can dig up from the Web. They only come up to 2004 and the numbers here do not correspond to the minister's. There is scope for clarification either from the ministry or from the National Statistics Office. NSO please note.

The minister's remarks on the period 2004-2006 which shows a year on year increase in new car imports, a steady figure for used vehicle imports with a spike in 2005 and an apparent decrease in the market share of the used import business. Yet the minister talks of 'incentives' for owners to change old cars for new.

These incentives do not exist. Rather, what has increased is the disincentive to buy imported used cars, consisting of a hike in 2003 on the minimum amount of tax payable on registering (importing) a used vehicle. This amendment to the RT law had no effect on the purchase of used and old vehicles already on the island. Furthermore, the increase in minimum tax may have served only to stabilise growth of the used car import business.

The minister admits that incentives are needed to get owners of old vehicles to change to new ones. Reality indicates that owners of old, marginally serviceable vehicles would not go straight to buying new but would go for a newer used vehicle, imported or already on the island. This creates a market for used cars which, in turn, is satisfied by the motorist able to purchase new and selling on his not-so old used car.

The registration tax regulations have never acted as an incentive for car owners to buy new. The tax has grown into such a monster that the government has lost sight of its tail. Registration tax was shrewdly introduced in 1994 as a direct replacement of import duties extracted on imported vehicles. This was done to avoid having to dismantle the import duty on cars during the run-up to joining the EU. The 'minimum tax payable' on used car imports was present from the early stages.

The minimum tax was marginally lower than what it became in 2003, except for the 1301cc to 1500cc category. In spite of these 'incentives' for Maltese to buy new cars, used passenger car imports increased from 311 in 1997 to 3,908 in 2003, while the average age of the passenger car fleet reached 11.7 years (around 12 years in 2007). So much for encouraging car renewal! These figures (NSO) are only for passenger cars and do not include commercial vehicles which could add another 40%.

VAT was introduced with the understanding that it would replace import tariffs and levies which had to be dismantled before EU accession. VAT at 15% (later 18%) was applied to the overall price of cars including registration tax without the cost-mitigating effect of removal of this import duty equivalent. This is what can only be described as tax gluttony. The overall 18% VAT is equivalent to an increase of 50% on the lowest registration tax rate of 50.5% (effectively taxing the vehicle at around 75 to 85% of CIF) and a 45% increase on the highest registration tax rate of 75% (effectively taxing the vehicle at around 110 to 120% of CIF).

The minister calls all this an incentive to buy new cars. Major banks in Malta are currently offering tens of thousands in credit to yacht enthusiasts who benefit from a reduced VAT rate and a token registration fee of only several hundred liri. Registration tax should have been reduced to absorb VAT as if registration tax were an import duty. This should have been the starting point for incentives for car renewal.