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You are here: FIA Region I Policy Priorities Response by the Fédération Internationale de l’Automobile to the European Commission’s proposal for a directive on passenger car related taxes (COM(2005) 261 final)

 
 

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Response by the Fédération Internationale de l’Automobile to the European Commission’s proposal for a directive on passenger car related taxes (COM(2005) 261 final)


Publication date: 26 October 2005


The FIA is pleased to have this opportunity to respond to the European Commission’s proposal for a directive on car taxation. It is the view of the FIA that this proposal 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 FIA, as such we welcome the contents of the proposal. As the voice of Europe’s motoring consumers, representing over forty-three 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 FIA believes that the proposal 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 over 270 billion euro 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 proposal, is a rethink of the tax base. Policy goals should be identified and the tax base should be altered accordingly.  The FIA believes 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.

 

The FIA supports 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 are 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 euro for an individual, and around 65 million euro 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 FIA therefore supports 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 FIA believes 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 FIA therefore calls 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 FIA believes that the Commission and the European Parliament should not lose this opportunity to bring to the attention of Member States the obstacles that 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 FIA believes 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 FIA calls 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.

 

The FIA supports the Commission’s proposals to include a CO2 element into annual circulation taxes. The FIA believes 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 FIA also welcomes 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.

 

In summary, the FIA supports the proposal of the Commission. We are particularly pleased with the proposal 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 FIA believes 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 FIA believes that a fundamental, and revenue neutral, reform of motoring taxation is needed, rather than a piecemeal approach.

 

However, overall the proposal is a welcome addition to the debate on the future of motoring taxation, a debate that the FIA believes is necessary and long overdue. The FIA calls 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:
FIA European Bureau
Rue d’Arlon 50
B-1000 Brussels
Tel: +32 2 282 08 25
Fax: +32 2 280 07 44

 


 

(1) European Commission (2002a), Study on Vehicle Taxation in the Member States of the European Union, Brussels: European Commission, page 61.


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