The government could lose €7 million worth of taxes in the coming three months as a result of the slowdown in car sales, the director general of the GRTU Vince Farrugia warned.
"For the past few months, the government has not noticed any decrease in its revenue because there is a lag between the time a car is ordered and the time it is registered. But it will soon realise just how much sales have slowed down, as car sellers have been saying!"
Motoring brings in considerable revenue for the government. It collects almost €93 million a year in taxes and licences on cars, in addition to VAT and excise tax on fuel.
The government is being warned by the European Commission that it needs to revise the current registration tax regime. But as the months went by with no new scheme in place, buyers began to put off their purchases in the hope that the new regime would be cheaper. As a result, sales have plummeted, leading Finance Minister Tonio Fenech to say recently that he would try to refund any difference between the new and old regimes, possibly by offseting it against future motoring-related tax.
"I would suggest that the government establishes a clear cut-off date, one that is as soon as possible, guaranteeing that any difference in tax would be refunded in one payment. It would also be a way of putting pressure on itself to sort out the issue once and for all," Mr Farrugia said. The registration issue is far more complex than it would seem at face value.
It affects importers of new cars, importers of second-hand cars from EU member states, importers of second-hand cars from non-EU member states (predominantly Japan) and auto dealers who trade second-hand cars within Malta. Each of these sectors has its own interests, most of which clash directly with those of the others.
Most of them have their own associations but are also GRTU members, which puts the chamber in a position to bring all the sides together. This is why the GRTU has been holding separate meetings with the various sectors as well as with the government.
The issues break down into three separate arguments. One is that ideally tax on cars should be linked to their exhaust gases, which account for a third of carbon dioxide emissions in the country.
A second is that there is a minimum registration tax that has to be paid on second-hand cars.
"This was introduced because it is not in Malta's interest to encourage dumping of very cheap, possibly old and polluting cars. But this minimum, which is around €3,000, goes against World Trade Organisation rules, as we have been pointing out for 10 years, as well as more recently raising the ire of the European Commission," Mr Farrugia said.
The third issue is that VAT is paid on the value of the car and the registration, and not on the value alone, making it a double tax.
The GRTU is hoping to find a solution acceptable to all the sectors, which would not result in a dramatic devaluation of the market.
"The total tax on a car can amount to 110 per cent of its value (registration tax alone is between 55 and 75 per cent).
So if the registration tax were removed, the cost of a car could halve. In turn, the value of all the other cars on the market would go down as you would be paying less for your new car but you would get less for your trade-in or old one if you tried to sell it second-hand," he said.
"Our registration tax is one of the highest in the EU - Denmark's is 65 per cent. But changing it would have a negative impact on the value of all the 200,000 cars in Malta. This is why we would not propose that the registration tax itself is reduced or removed - at least for now. There is strong opposition from auto dealers as they feel this move would drastically devalue all cars in stock. Apart from the fact that government would have to raise the tax from somewhere else..."
The GRTU is proposing a system that would link lower annual licences to lower emissions as a way to ensure environmental concerns are promoted. This would enable the government to introduce harsh penalties - in the form of high licence fees - for heavy polluters (whether this is due to a car's age, efficiency or size).
"The government has to remove the minimum tax and also the VAT on the registration tax. I know that this will affect its revenue but it has no alternative. And if it has to do it, then it had better do it sooner rather than later."
"For the past few months, the government has not noticed any decrease in its revenue because there is a lag between the time a car is ordered and the time it is registered. But it will soon realise just how much sales have slowed down, as car sellers have been saying!"
Motoring brings in considerable revenue for the government. It collects almost €93 million a year in taxes and licences on cars, in addition to VAT and excise tax on fuel.
The government is being warned by the European Commission that it needs to revise the current registration tax regime. But as the months went by with no new scheme in place, buyers began to put off their purchases in the hope that the new regime would be cheaper. As a result, sales have plummeted, leading Finance Minister Tonio Fenech to say recently that he would try to refund any difference between the new and old regimes, possibly by offseting it against future motoring-related tax.
"I would suggest that the government establishes a clear cut-off date, one that is as soon as possible, guaranteeing that any difference in tax would be refunded in one payment. It would also be a way of putting pressure on itself to sort out the issue once and for all," Mr Farrugia said. The registration issue is far more complex than it would seem at face value.
It affects importers of new cars, importers of second-hand cars from EU member states, importers of second-hand cars from non-EU member states (predominantly Japan) and auto dealers who trade second-hand cars within Malta. Each of these sectors has its own interests, most of which clash directly with those of the others.
Most of them have their own associations but are also GRTU members, which puts the chamber in a position to bring all the sides together. This is why the GRTU has been holding separate meetings with the various sectors as well as with the government.
The issues break down into three separate arguments. One is that ideally tax on cars should be linked to their exhaust gases, which account for a third of carbon dioxide emissions in the country.
A second is that there is a minimum registration tax that has to be paid on second-hand cars.
"This was introduced because it is not in Malta's interest to encourage dumping of very cheap, possibly old and polluting cars. But this minimum, which is around €3,000, goes against World Trade Organisation rules, as we have been pointing out for 10 years, as well as more recently raising the ire of the European Commission," Mr Farrugia said.
The third issue is that VAT is paid on the value of the car and the registration, and not on the value alone, making it a double tax.
The GRTU is hoping to find a solution acceptable to all the sectors, which would not result in a dramatic devaluation of the market.
"The total tax on a car can amount to 110 per cent of its value (registration tax alone is between 55 and 75 per cent).
So if the registration tax were removed, the cost of a car could halve. In turn, the value of all the other cars on the market would go down as you would be paying less for your new car but you would get less for your trade-in or old one if you tried to sell it second-hand," he said.
"Our registration tax is one of the highest in the EU - Denmark's is 65 per cent. But changing it would have a negative impact on the value of all the 200,000 cars in Malta. This is why we would not propose that the registration tax itself is reduced or removed - at least for now. There is strong opposition from auto dealers as they feel this move would drastically devalue all cars in stock. Apart from the fact that government would have to raise the tax from somewhere else..."
The GRTU is proposing a system that would link lower annual licences to lower emissions as a way to ensure environmental concerns are promoted. This would enable the government to introduce harsh penalties - in the form of high licence fees - for heavy polluters (whether this is due to a car's age, efficiency or size).
"The government has to remove the minimum tax and also the VAT on the registration tax. I know that this will affect its revenue but it has no alternative. And if it has to do it, then it had better do it sooner rather than later."