Controversy on second-hand car taxation

Getting two experienced lawyers to agree on the interpretation of an obscure point of law is difficult enough. Getting two opposing politicians to agree on the same issue is even more difficult.

The second-hand car controversy relates to whether the Government or its agency are entitled to charge a certain level of registration tax and VAT on this same tax to those who import second-hand cars.

The most recent development in this saga was a decision by the court that ruled that the transport regulator must refund to a Maltese couple who imported a car from the UK €6,921 in excessive registration tax and VAT paid on the vehicle. The verdict was quickly described as a “landmark judgment”.

But soon after, lawyers were advising thousands of owners of second-hand cars imported between 2004 and 2008 not to pop their champagne corks just yet. These 18,000 owners started a class action lawsuit organised by the Labour Party that is seeking a refund of VAT on cars bought before registration tax rules were amended in 2009.

The PL lawyers argue that charging tax on tax goes against EU rules. The Finance Minister says the facts of the case on which the court gave a ruling were substantially different from that of other car owners taking collective legal action against the government.

The implications of this saga go beyond the legal interpretation of when tax is, or is not, payable on second-hand cars.

This issue involves consumers’ rights and fiscal consequences should the court decide that those who paid VAT between 2004 and 2008 are entitled to a refund by the Government. The amount in question could amount to as much as €50 million. One needs to ask where the money that could become payable to these owners, if they were to win their case in court, will come from.

EU regulations are often very complex and could be confusing even to those who are familiar with Brussels speak. However, the EU must be commended for putting consumers’ rights at the forefront of its legislation.

It should never happen that an ordinary citizen has to go to court to insist that his/her legal rights as a consumer are upheld because a powerful regulator takes it upon himself to interpret what rights a particular citizen has in a specific set of circumstances.

The high-handed attitude of some of our regulators needs to change to ensure that consumer’ rights of all Maltese are always fully protected.

In this case, the Government and the transport watchdog should have thoroughly tested their logic for charging VAT on the registration of second-hand cars not only with legal advisers but also with the relevant authorities in the European Commission.

Had this been done thoroughly there would probably have been less controversy surrounding this issue.

The fiscal implications that will follow a final legal decision on this issue could also be significant.

The PL has promised that if and when it is in power it will refund the amount of excessive tax paid by the thousands of car owners if they win their court case. If people are entitled to it, fair enough. But the question remains: where will this money come from?

As usual, taxpayers will foot the bill much to their distress. The PL would have won a Pyrrhic political victory. Should it be in government, it will have to find a solution.