Car taxes: the less I pollute, the less I pay

Publication date: 21 June 2006

Within ten years car registration taxes should be replaced by annual road taxes based on a common system across the European Union. The tax will be based on the pollution level generated by each car, in order to encourage the purchase of “clean" cars. This is the broad aim of the new measures proposed by the European Commission, which the Parliament will discuss during the next plenary session.

Tempted by an attractive offer, you are about to buy the car of your dreams; but bear in mind that the price will be increased by taxes and these can be a significant part of the running costs of the car.
 
Within the EU, the reduction in car taxes will depend more and more on the pollution level generated by the car. The aim of these so-called “environmental” taxes is to change the behaviour of car drivers so that they take into account the cost of pollution in the car’s running costs. The more the car respects the environment, the less taxed it will be. On June 21, Parliament’s Économic and Monetary Committee backed the Commission's proposal (COM(2005) 261), but MEPs want the legislation to go beyond CO2 emissions to include other pollutants.

com2005_261_taxation.pdf (218 KB)
 

Pay for usage not registration
It should get cheaper to buy and run a "clean" car. This is good news, but there’s more. Thanks to the internal market, everyone is already free to buy a car in the Member State of his choice. Thanks to the euro, it is also easier than before to compare car prices from one country to another, facilitating the choice of the best offer. But with 25 different taxation systems, it's not that simple. Indeed, depending on the country, the tax to be paid when a car is put on the road can vary from 0% to 180%. This must be taken into account when comparing prices and before leaving the dealer. Also, when you return home, having bought a car in another Member State, you may be required to pay an additional tax to be able to use the car in your country. The project supported by the Parliament would cancel this registration tax within 10 years. The acquisition of a car would no longer be subject to tax, only its use. This would mean the end of dual taxation: from now on, users would pay the annual road tax only in the country where the car is registered.
 

Will cars be cheaper?
These new measures should allow manufacturers to realize economies of scale, as it will no longer be necessary to take into account different technical criteria (for example, environmental) according to national taxation systems. Selling will be easier on a market which is not as broken up as today and this should lead to a reduction in car prices.
 

Consumers will win, States won’t lose
MEPs insisted on a clear definition of the time needed to introduce the changes. This should take 10 years. They also favour, during the transitional period, a reimbursement system to save consumers from dual taxation.  Finally, for Member States who don't want to lose income, MEPs agreed to the principle of budget neutrality: the replacement of the registration tax by the annual road tax will not reduce the amount of tax due. It is crucial to convince Member States as the Council must agree unanimously. Parliament will vote on the issue in July, but has only an advisory role.

Related News Item:
- Commission proposes abolition of registration taxes (5 July 2005)