The European Commission has closed infringement procedures against Malta over VAT charged on car registration tax because this was no longer in the Statute Book.

The car registration tax, which came into effect on January 1, was aimed at encouraging the use of smaller and environmentally-cleaner cars, the Finance Ministry said.

The controversy over the VAT paid on car registration erupted last February when EU Taxation Commissioner Laszlo Kovacs said it was not in accordance with European community law.

The Labour Party maintained that this meant that VAT on registration levied by the government after EU accession in 2004 was illegal and should therefore be refunded.

In line with budget provisions, VAT was no longer charged on the registration tax of vehicles as of January. However, Labour kept insisting that the government should refund the €50 million it had levied in the intervening period. It even instituted a court case on the matter inviting aggrieved car buyers to join.

Reacting yesterday, Labour said the Commission's decision was proof that the party was right to insist that the tax was irregular before it was changed.

"Now that it has been con-firmed that Malta's position was illegal between 2004 and 2008, one hopes the government would not keep dragging its feet over the legal proceedings the party initiated on behalf of 17,000 consumers."

The Commission said yesterday it had taken Austria to the European Court of Justice for the inclusion of car registration tax in the taxable base on which VAT was calculated.