Response to the European Commission Communication on the Taxation of Passenger Cars
Publication date: 04 October 2002
The AIT and the FIA is pleased to have this opportunity to respond to the European Commission’s paper on car taxation. It is the view of the AIT and the FIA that this Communication should be seen as a vital part of the European Union’s strategy to achieve sustainable mobility in the twenty-first century. This is an objective fully shared by the AIT and the FIA, as such we welcome the contents of the Communication. As the voice of Europe’s motoring consumers, representing over forty million motorists, we also welcome the Commission’s proposals aimed at completing the internal market for cars. For too long, motorists have been faced with a mountain of red tape and increased costs, not to mention widely differing car prices.
The AIT and the FIA believe that the Communication is to be welcomed as a timely addition to the debate on the future of car taxation, a debate which is desperately needed. However, there are a number of proposals which need close inspection and comment. Our rejoinders will be based on a simple premise: the car and car users should be placed at the heart of the policy agenda.
At present there are over 100 million car users in the European Union paying some € 270bn a year in taxes, this is around 15% of EU governments’ total revenues. Yet policy makers have constantly sought to extract more money from motorists , believing that simply increasing the costs of motoring will force people to change their transport habits. The basic truth is that increasing motoring costs will not have the desired policy effects. Motoring taxation is already too high, any effort to increase the burden placed on motorists is simply wrong.
What is needed, and is reflected in the Commission’s Communication, is a radical rethink of the tax base. Policy goals should be identified and the tax base should be altered accordingly. The AIT and the FIA believe that this process should be built upon recognition of the centrality of the car as the main form of mobility within the EU. Simply increasing costs will punish car dependent motorists, particularly those on lower incomes. It is right that fiscal policy should be used to pursue policy goals, such as environmental protection and road safety, but changes to the tax base should be revenue neutral and provide incentives to motorists to alter their travel behaviour and to purchase cleaner cars.
1. Registration Tax
The AIT and the FIA support the phasing out of registration taxes (RT). Our members have right to expect the full benefits of the single European market. Yet this is not the case. The existence of registration taxes creates distortions and impedes the completion of the internal market. The costs to Europe’s motorists when moving their car from one member state to another, both in terms of time and money, are high. The processes to de-register and then re-register automobiles is complex, slow, and overly bureaucratic. Motorists lack information on the various registration systems in the Union: ‘for finding out information on the entire procedure of exporting a vehicle from one member state to another and importing it into another, on average the citizen should expect to require one full working day at least’. (1) This is even before the citizen has begun the process of moving his/her car. Thus, the existence of registration taxes can be seen to act as a barrier to the free movement of European citizens.
Not only is the process frustrating and time consuming it is also costly, both to the individual and society as a whole. The European Commission’s report on vehicle taxation (2002a) estimates that the average costs moving a car in a segmented car taxation system and market are € 351 for an individual, and around € 65mn per annum for society as a whole. This is a pointless waste of money. In addition to the administrative costs motorists are also faced with the problem of double taxation. This is the case for both registration taxes and annual circulation taxes (ACT). When moving their cars from one Member State to another, citizens have to pay taxes in their new country of residence after having already paid in their old one. Whilst a limited system of reimbursement exists at the national level for circulation taxes, no such system is in place for registration tax. Thus, motorists have to pay to register their car twice. The AIT and the FIA, therefore support the Commission’s proposals to introduce a reimbursement system at the European level. However, this system should be only a short-term measure and no substitute for the phasing out of registration taxes.
Registration taxes are also partly responsible for the wide disparity in car prices across the Union, which is perhaps the single biggest obstacle to the creation of a single market for cars. Car manufacturers are unable to take advantage of the economies of scale that the single market should provide. Thus, Europe’s competitiveness is harmed and consumers face prices which are higher than should be the case. Research by the Commission indicates that the abolition of registration taxes would reduce the price of new cars by between ten and twenty-five percent (European Commission, 2002a). By abolishing registration taxes consumers would profit from lower car prices, manufactures from increased efficiency and sales, and society from the fact the increased sales would lead to a newer car fleet which would be cleaner and safer, thus contributing to sustainable mobility.
Thus, the AIT and the FIA believe that the abolition of registration taxes is a win-win situation for all those affected. From the point of view of the motoring consumers the change would be overwhelmingly positive. Motorists would benefit from cheaper cars, increased freedom, and a simplified tax base. The abolition of registration taxes would signal a shift away from the taxation of car ownership towards the taxation of car usage. It would enable Member States to introduce a clear structure and co-ordinated structure for fiscal incentives. The AIT and the FIA, therefore, call for registration taxes to be phased out as quickly as possible. In the short-term, we favour the creation of a refund system to smooth the functioning of the single market.
The AIT and the FIA believe that the Commission and the European Parliament should not lose this opportunity to bring to the attention of Member States the obstacles that current the current motoring tax regime imposes on the free movement of Europe’s motoring citizens. These obstacles are further compounded by issues such as vehicle registration and motoring insurance cover (particularly Third Party Liability Insurance). The AIT and the FIA believe that these barriers to movement should be considered at the same time as registration taxes.
A citizen must register his car in one member state (generally the country of residence) in order to obtain a registration number plate. This then becomes the country where he is obliged to pay his motor vehicle taxes. According to the principle of localisation of insurance risk he is obliged to obtain insurance cover on the national market. Problems arise when motorists spend periods of time abroad, generally longer than six months, such as a stay in secondary residence or for academic or professional reasons, but which do not involve a complete change of residence. Many motorists cannot understand why having registered and insured their vehicle in one Member State, such a move requires after variable periods of time, a repetition of this process.
With each of the 15 Member States having their own registration and insurance provisions, life for the average motoring citizen can be confusing in a system characterised by a lack of transparency. What is needed are clearer and harmonised definitions of both the period of time and of where citizens need to register their vehicles and obtain insurance cover. Thus, the AIT and the FIA call on policy-makers to address all aspects which limit the free movement of people, not just registration taxes. To do otherwise would fail Europe’s motoring citizens and delay the completion of the single market.
2. Annual Circulation Tax
The AIT and the FIA support the Commission’s proposals to include a CO2 element into annual circulation taxes. The AIT and the FIA believe in the ‘precautionary principle’, which justifies action now to reduce CO2 and other harmful emissions. By differentiating the levels of taxation between more and less fuel-efficient cars to such a degree that incentives are offered to consumers to choose more fuel-efficient cars, we can go along way to reducing harmful emissions and achieving environmentally sustainable motoring. Experience has shown us that by introducing a CO2 element into company car taxation in the United Kingdom, fiscal measures can significant effect on the choices made by consumers.
The AIT and the FIA also welcome to the Commission’s acknowledgement that these proposed changes to the tax base should be revenue neutral. Motorists already pay more than enough tax and these proposals should not be used by the Member States’ finance ministries to raise further revenue. The tax base should be redesigned to fulfil certain policy objectives, but not be used to squeeze even more money from Europe’s citizens.
3. General Remarks
The AIT and the FIA does have some comments and concerns relating to the Communication. The Commission proposes to increase the excise duty on non-commercial use diesel to that of unleaded petrol. Indeed a proposed directive on this issue has been recently published. (2) Given the European Union’s commitment to reducing harmful emissions, the AIT and the FIA find this policy somewhat puzzling. Sales of new diesel cars are increasing all the time, the primary reasons for this have been the improved fuel efficiency of these cars and the relative cost of diesel. Diesel cars are more fuel efficient than petrol cars, resulting in relatively fewer CO2 emissions. Thus, the Commission should be encouraging this segment of the market, rather than seeking to penalise motorists who choose diesel cars. As far as the AIT and the FIA is concerned these proposals simply represent another attempt to raise tax revenues, rather than encourage cleaner motoring. (3) As such, we cannot condone this element of the Commission’s Communication.
Regarding the use of fiscal measures to reach policy goals, the AIT and the FIA believe that the Commission could make more of the role of fiscal incentives in promoting its road safety objectives. New active safety systems (ITS technologies) for cars and road infrastructures are beginning to emerge. In the future these new systems offer the exciting possibility of reducing road fatalities. We believe the most efficient way to ensure that these technologies reach the market and are used by consumers would be through fiscal incentives. Tax incentives for cleaner cars can also have an immediate positive effect in terms of safety, accelerating the introduction of vehicles which have been engineered to the highest safety standards.
In summary, the AIT and the FIA support many of the proposals in the Communication. We are particularly pleased with the proposals to phase out registration taxes. For too long registration taxes have acted as a barrier to the free movement of Europe’s citizens and the completion of the single market. We also call on Europe’s policy-makers to address issues such as registration and insurance provisions, which have also delayed the completion of the single market. The AIT and the FIA believe that a holistic approach is need in this area.
We also support the introduction of CO2 element in annual circulation taxes. Our concern is that the changes to the tax base proposed by the Commission will be used by Members States to simply raise revenue without regard to transport and environmental policy objectives. The AIT and the FIA believe that a fundamental, and revenue neutral, reform of motoring taxation is needed, rather than a piecemeal approach.
However, overall the Communication is a welcome addition to the debate on the future of motoring taxation, a debate that the AIT and the FIA believe is necessary and long overdue. The AIT and the FIA call on all policy-makers and stakeholders to continue a dialogue so as to work towards our common goal of sustainable mobility in the twenty-first century.
For More Information Contact:
AIT&FIA European Bureau
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(1) European Commission (2002a), Study on Vehicle Taxation in the Member Sates of the European Union, Brussels: European Commission. Pg., 61.
(2) European Commission (2002b), Proposal for a Council Directive amending Directive 92/81/EEC and Directive 92/82/EEC to introduce special tax arrangements for diesel fuel used for commercial purposes and to align the excise duties on petrol and diesel fuel, COM(2002) 410.
(3) For more details of the AIT and FIA position on diesel taxes, please see our response to the proposed Directive. If you wish to receive a copy please contact our Brussels Office.