Thursday 19 September 2019

Vehicle tax will add €1,000 to the price of new and used cars

  

Prices going up: Finance Minister Paschal Donohoe is expected to revamp the way Vehicle Registration Tax is calculated
Prices going up: Finance Minister Paschal Donohoe is expected to revamp the way Vehicle Registration Tax is calculated

Kevin Doyle and Eddie Cunningham

The price of new and used diesel and petrol cars will go up by as much as €1,000 under plans to clamp down on emissions.

Finance Minister Paschal Donohoe is being advised to dramatically overhaul the motor taxation system and to help squeeze out second-hand UK imports.

An Irish Independent analysis of taxation changes proposed by the Department of Finance shows it will hit the purchase price of vehicles from next July.

There are expectations of a rush to buy in the first quarter of 2020 to avoid the charges.

But even then, tens of thousands of motorists face higher running costs due to likely increases in motor tax and excise duty on fuel.

Mr Donohoe will have to decide on the reforms in time for October’s Budget, but his officials are clear that changes are needed to achieve the objective of becoming a leader in the take-up of electric vehicles.

One issue highlighted in the Department's Tax Strategy Group (TSG) is the high rate of diesel cars in Ireland compared with other EU countries. This is "principally arising from used car imports".

It is estimated 103,976 used cars will be registered this year, almost half of all cars registered for the first time on our roads.

While the weakness of sterling is cited as one reason for a spike in imports, the TSG says the "disparity in the respective tax and regulation policies of Ireland and the UK in relation to diesel" is also fuelling the problem.

"Market sentiment has turned strongly against diesel vehicles in the UK due to the range of anti-diesel measures introduced by its government in recent years," the TSG reported.

"This feeds into the Irish market being a convenient outlet for used diesel cars."

It adds that the minister "must" consider this in view of the "specific contribution of diesels to environmental health issues".

Mr Donohoe is expected to introduce a new way of calculating Vehicle Registration Tax (VRT) based on advanced technology for measuring emissions.

The current NEDC system will make way for the more stringent WLTP assessment, which the Society of the Irish Motor Industry (SIMI) estimates will increase average car prices by €550.

In addition, the latest plan also calls for an environmental charge, on health-endangering NOx emissions, to be levied on cars, diesel and petrol.

It is estimated it could put an extra €200 to €400 on the cost of a car.

And added to that could be higher VRT levels stemming from the plan's proposals to charge more for cars with even moderately low levels of emissions.

Given that new-car prices are going up, adjusting import VRT levels is expected to only level the playing field with newer cars.

But if the plan's NOx charge is brought in then older imports - basically those up to 2014 - would face a potentially prohibitive extra cost.

SIMI chief Brian Cooke says that could make a difference to volumes as more than half of used imports are four or more years old.

But he warned: "Any increase in VRT that makes new cars more expensive than second-hand imports is counterproductive from a reduction-in-emissions perspective."

In relation to motor tax, the advice is to "recalibrate" the regime for passenger cars in light of recent progress on emissions standards.

Currently there is just a €10 gap in the annual rates charged between the most common tax bands - but this is seen as a "not particularly strong" incentive.

Most cars registered in the last decade fall into the A2, A3 or A4 categories which are currently taxed at between €180 and €200 a year.

Mr Donohoe has been presented with options for widening the price gap to between €175 and €225 or between €200 and €260.

Meanwhile, the minister is also being advised to review the reliefs in place for conventional hybrid cars and to limit the €5,000 tax relief on fully-electric vehicles (EVs). Tax breaks for EVs in future could apply only to cars valued up to €50,000.

Irish Independent

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