The government has informed Brussels about its planned reform of the car registration tax and will include its proposals in the next pre-budget document following consultation with stakeholders, Finance Minister Tonio Fenech said yesterday.

He said the government was working to overhaul the whole system and already had an emissions-based model in mind.

Besides being environmentally friendly, the reform should lead to cheaper cars on the local market. Malta imposes one of the highest registration tax regimes on imported cars in Europe, which means cars sold here are among the most expensive in Europe.

Vehicles are taxed between 60 and 65 per cent of their value, depending on engine capacity, and are subjected to 18 per cent VAT on the amount of registration tax payable.

The European Commission had sent a formal request to Malta to amend the regime.

It argues that the minimum thresholds imposed on second-hand vehicles imported from the EU - irrespective of their value - are a discriminatory measure and it also objects to VAT being levied on the tax.

The issue was first raised by MEP Joseph Muscat in the European Parliament. The Commission gave the government until yesterday to inform it about the concrete steps it will be taking in this regard.

Speaking to The Times yesterday, Mr Fenech said that despite the general election, the government had still managed to meet the Commission's deadline.

"We have replied to the Commission and have notified them of our intention to carry out a whole reform of the system. We explained to them the principles of our reform but did not go into detail because the details are still being worked out.

"We highlighted that we intend eliminating the issues that the Commission has raised - basically that we are charging VAT. However, we are not limiting ourselves to reforming this aspect but doing a complete overhaul of the car registration tax. We want to transform this tax into an emissions-based tax rather than simply a registration tax.

"We will also be taking steps to address other issues mentioned by the Commission, including that of discrimination on cars imported from within the European Union and those imported from outside the EU. This is a whole complex reform that we are working on and we hope to announce the details soon," he said.

Asked when the changes are expected to be in place, Mr Fenech said they could not be immediate because they would have to be approved by Parliament.

"We want to carry out the change as soon as possible, especially not to hold back the market, but there has to be a consultation process with the stakeholders. The government already has a model of what it wants to achieve but this has to be fine-tuned following the discussions with the stakeholders. There are different models that are being considered and there are several ways of looking at the different aspects," he said.

Mr Fenech said he was aiming to carry out the consultation process until June, when the pre-budget document is published.