Finance Minister considering tax options for car purchases

Finance Minister Tonio Fenech is considering allowing those who register their cars under the present system to be exempted from a proposed annual tax based on emissions.

The government has to change the current car registration regime but potential buyers are putting off purchases in the hope that the new tax will be cheaper, leading companies selling new and second-hand cars anxious about the sharp drop in sales.

Mr Fenech had earlier hinted that he would give purchasers a credit for the difference between the new tax and the current tax, which could then be offset year after year against the new annual tax - which he is calling a circulation tax - until it is used up.

He said in an interview that he would not have changed the current system unless he had to.

"If you want my blunt opinion, I prefer today's system to the one we are going to introduce. Today we have a system where you buy a car, pay the tax up front and then forget about it.

"With the new system, there will be cut in the registration tax but the total price will not be impacted as significantly as a lot of people seem to think. You will need to pay a new annual charge over and above the licence, depending on polluter-pay principles and other factors. We were very clear in our electoral programme: This is not a tax reduction measure but the shift of a tax, so that the net impact on the government will be the same," he said.

His concern now is to get people to continue purchasing. Although the recently-released statistics do not show any drop in car sales, the industry and the GRTU are warning that this is because of the time lag between sales and registration, adding that the slowdown will soon start to show up in the data.

"We are studying whether it is possible for a car to remain under the old regime, rather than the new one. So you might be offered the option of either. It may not be easy to work out but these are the options we are considering," he said.

The government also faces the revision - or removal - of another tax: The departure tax. The European Commission has given the government a few months' grace in view of the fact that Parliament was brought to a halt by elections. However, even though the government has known for years that the tax is discriminatory, it is still not clear what its plans are. "The solutions are very easy: Either abolish the tax completely or reduce it and charge it to everyone without discrimination," Mr Fenech shrugged.

"We are against the idea of reducing the tax but applying it to all visitors because we don't want to increase costs for incoming tourists. We have not yet taken a final decision.

The tax provides government revenue and if I lose a few million euros, I have to see from where they will be replaced. Or I can wait for the time when I can remove it without replacing it with something else. That is my desire."

That may sound like the ideal solution but has the European Commission run out of patience? The government could not do anything until Parliament reopens this week but how much longer will it wait?

Mr Fenech leaned forward.

"The time will come. We will keep our electoral promises," he said.

(The rest of the interview with Mr Fenech will appear on May 15.)