MEPs Back Call For European Car Tax

by Ulrika Lomas, Tax-News.com, Brussels

07 September 2006

The European Parliament has backed plans to scrap national passenger car registration taxes throughout the European Union and replace them with a single European levy based on exhaust emissions.

MEPs adopted a report from Danish member from Karin Riis-Jorgensen, which calls for the linkage of tax to the amount of pollution produced by a car, in a 385-139 vote with 109 abstentions.

Car registration taxes currently vary widely across the EU from 0% to 180% of the pre-tax price of a car. According to the Commission, this distorts the internal market, is administratively complex, encourages tax avoidance – and can often mean people buying a vehicle in one Member State then moving it to another have to pay twice.

In an attempt to solve these problems, the Commission has proposed a directive to phase out registration taxes over ten years and replace them with Annual Circulation Taxes linked to the carbon dioxide emissions of the car concerned – so the less environmentally damaging the car is, the less the owner has to pay.

By approving the report from Riis-Jorgensen, Parliament backs the Commission’s general approach, though it says that the environmental aspect should be more broad, with the level of tax linked to fuel efficiency and pollutant emissions as well as carbon dioxide. MEPs also note that the changes should be revenue neutral.

As will most matters concerning taxation, Parliament's role is consultative - the final decision must be taken unanimously by the Council.

However, the proposal is likely to be opposed by a number of member states, and the British government has already said that it will not back the measure.

In a statement published by the Scotsman newspaper, the UK Treasury said that tax policy should be left to individual nations, not Europe.

"We are against the principle of tax harmonisation and are very much of the view that tax is an issue for sovereign member- states, governments and parliaments," the spokesman stated.

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