German Government Waives Tax On New Vehicles

by Ulrika Lomas, Tax-News.com, Brussels

18 November 2008

Despite a prevailing air of peace and harmony surrounding the German government’s approved rescue package – on both sides of the Coalition – the decision to exempt purchasers of new vehicles from road tax remains highly controversial.

Indeed, mounting pressure from both the Christian Democrat Union and the Social Democratic Party resulted in last-minute amendments to the initiative. Consequently, the initial proposal, to exempt new cars from road tax for up to two years, will now only apply until the end of June, 2009.

Reacting positively to the measures, the car industry has welcomed the government's announcements.

Yet the concept is still regarded by many as ecologically questionable, as the tax exemption applies to all new cars, including four-wheel drive vehicles, and is also viewed as economically inefficient, with some fearing that tax savings of several hundred euros will not provide the necessary incentive to encourage people to buy new cars.

Endeavouring to address ecological concerns, coalition groups will be seeking advice in the coming weeks on further measures designed to encourage the purchase of environmentally-friendly vehicles. The government’s ultimate aim is to convert the motor vehicle tax to a tax based on carbon dioxide emissions, from 2011. Control of the road tax would then pass from the federal states to the government.

Recent key announcements by the German government pertaining to road tax are summarised as follows:

• Those buying new passenger cars from now until June 30, 2009, will not have to pay road tax for one year. Should the car also comply with European emission standards at levels 5 or 6, then this tax exemption will be extended to a maximum of two years.
• Low-emission vehicles may also benefit from a one year tax exemption from January 1, 2009, provided that the car complied with Euro-5 emission standards on the date of vehicle registration. The tax exemption ends on December 31, 2010.
• Over the next eight months, the German government intends to provide a boost to the sale of new cars, by clarifying existing uncertainties surrounding future motor vehicle taxation.
• From January 1, 2011, a new tax will be introduced, regulated by carbon dioxide emissions: the lower the carbon dioxide emission, the lower the tax imposed.

Exempting new cars from road tax forms part of the German government’s rescue package, ratified on November 5, 2008.

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