Ireland Consults On Vehicle Tax Options

by Jason Gorringe, Tax-News.com, London

14 December 2011

A decline in new car sales, coupled with the inclination of consumers towards cheaper and cleaner cars, has meant a fall in Irish vehicle tax revenues and prompted the government to consult on options for reforming the levies.

Following on from commitments outlined in the recent Budget, the Finance Minister Michael Noonan and the Minister for the Environment, Community and Local Government, Phil Hogan, have launched a consultation regarding the proposed revision of the current system of Vehicle Registration Tax (VRT) and Motor Tax. The government wants to adjust CO2 bands and rates in line with technological advances in motor vehicles, while maintaining a positive environmental incentive to reduce transport emissions.

In its consultation document, the government states that a decline in new car sales, combined with increased competition on car prices and consumer moves towards buying cheaper and cleaner cars, has resulted in a sharp fall in VRT yields. Almost 96% of new cars purchased have been in the first three CO2 emission bands, where the VRT rates are lower, meaning that VRT revenues dropped from EUR1.4bn (USD1.8bn) in 2007 to less than EUR400m in 2009 and 2010. Receipts at the end of October 2011 stood at EUR365m, with 86,004 new cars purchased.

In addition, annual motor tax income from private vehicles has declined from EUR863m in 2008 to EUR842m at the end of 2010, and EUR708m to the end of October, 2011. The number of vehicles taxed on the basis of CO2 emissions has increased by about 5% year on year. The average payment for vehicles in the CO2 system is EUR218, while for those taxed on engine capacity, the average payment is EUR444. At the end of October 2011, the CO2 fleet of almost 335,000 cars comprised 17.6% of all cars on the road, and of these, almost 300,000 are taxed at the three lowest bands.

The government estimates that, once older cars are all replaced by cars taxed on the CO2 system (projected to occur over the next 15 years or so), the total motor tax revenue collected from cars will halve. The consultation therefore asks respondents to consider options which will generate the conditions necessary for the protection and improvement in VRT and Motor Tax revenues for the Exchequer.

The government believes that, after a number of years of operation, it is now worth examining the current CO2 bands and rates structures for both taxes in the light of the overall reductions in CO2 emission levels being made by car manufacturers and the standards set internationally. It hopes to adjust the bands in line with technological advances, while simultaneously maintaining an environmental incentive for the shift to lower CO2 emissions from transport through to the future.

While the consultation sets in motion plans for future reform of Ireland's vehicle tax system, increases in the motor tax will go ahead in the meantime. Effective January 1, 2012, the levy will rise, generating additional income of EUR47m in 2012.

The consultation remains open until March 1, 2012.

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