Monday 19 August 2019

Winners and losers: Proposed changes on how our cars are taxed

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Eddie Cunningham

Eddie Cunningham

THE proposed changes on how our cars are taxed will mean some motorists could win and some lose out if the government adapts the Tax Strategy Group (TSG) plan in the Budget.

The proposed measures seek to address a number of issues – all within the ambit of the government’s Climate Action Plan.

They include the need to encourage use of greener cars with lower, and more, VRT bands, treat lower-priced electric cars more favourably than costlier ones, hit diesel for its NOx emissions and deal with many used imports by increasing tax.

If adopted by government the likely winners and losers could fall into the following categories:

TAX BANDS

*An increase in the number and potential severity of tax bands from 11 to 14 for VRT and road tax is suggested.

Winners would be the lowest-emission car owners as provision is made for a new lower 7pc rate. Losers are those with cars emitting above-average or higher levels.

Encouragement to buy low-emissions vehicles is pronounced with the proposed new low rate: 7pc on cars under 51g/km. There would also be a new 8pc VRT band for cars between 51g/km and 80g/km.

In keeping with a stepped approach there would be a more expensive tax band for every 10g/km above the previous – all the way to 201g/km+ where a swingeing new 39pc rate would apply for drivers of gas guzzlers.

HYBRIDS

*One of the biggest surprises is the paper’s claim there is evidence that CO2 emission levels for conventional hybrids under the new WLTP emissions system could be significantly higher than under the current test system. It casts doubts on the “justification” for extending VRT relief for conventional hybrids (not plug-ins) as a result. 

Losers could be, stress could be, hybrid owners losing €1,500 VRT rebate though there is bound to be a lot of debate about that as the likes of Toyota, the main hybrid seller in the country, would fight hard for retention on grounds of low emissions.

However, the report says the new lower VRT bands would greatly help balance the overall cost of purchase and ownership. So there could be winners too.

ELECTRIC

*Those hoping to buy an expensive new electric vehicle would lose out as the plan suggests a limit of €40,000 for the full €5,000 VRT relief on battery-powered EVs.

Stepped reductions after that would mean, as the plan says, that relief would cease at the €50,000 mark.

Again, the report argues that this would be at least partially balanced against the benefit deriving from the new lower 7pc band for cars with sub-50g/km emissions. As you know EVs have zero tailpipe emissions.

USED IMPORTS

*Those importing used cars could lose out too if the plan has its way. Cars with emission grades under the old testing regime (NEDC) would have their rating increased by 21pc and would be taxed accordingly. An alternative to this would be an EU sliding scale system. But either way import buyers lose.

SURCHARGE on NOx

*The plan proposes to replace the 1pc surcharge on new diesels with a new levy aimed at punishing NOx emissions.

Biggest losers could be diesel buyers - though petrol emits NOx too - as the levy increases costs though by how much is difficult to gauge.

Winners are, hopefully, the general public: NOx has been shown, in the longer term, to affect respiratory systems. With higher costs, it is expected fewer high NOx emitters would be bought.  The plan suggests a €5 per mg/km NOx – something like the system is operated in Norway. It would apply to all new cars and used imports.

CARROT AND STICK

*The plan stresses time and again that the VRT and taxation proposals must support the “environmental rationale” of them being imposed.

In other words, the tax has to have a positive effect in getting people to buy ‘greener’ cars. Invariably that means some motorists paying more and – hopefully - some paying less.

INCOME

*Significantly too, the plan seeks to stabilise or increase government income from motoring taxation. As more people have been buying reduced-emission cars, tax take has fallen. In that respect, the plan’s proposals are a balancing act between encouraging people to buy ‘green’ while taxing them for car ownership at the same time. Losers would be those stuck with high-emission vehicles if one of the plan’s options – to increase the gap between the most expensive band and the cheapest – is adopted.

Or they could widen the rate gap between each of the motor tax bands.

Or increase the gap between the lowest emitting vehicles and those with average/above average emissions.

Winners? The Exchequer.

TIME TO PREPARE

*Up to now, a sort of half-way-house system has been in operation which uses a formula to blend the old and new readings. Technically the full WLTP should be applied but the plan suggests not doing so until July, 2020 for new cars and used imports.

The report says: “In recognition of the lead-in time for dealerships ordering vehicles, it does not seem unreasonable that the commencement should be delayed until July 2020.”

Winners are vehicle importers who get a chance to order their cars for next July that are much more attuned to the new, proposed, regime. Winners too could be buyers who want to buy before the full impact of WLTP is felt. But it looks like the only way is up for prices so most people face losing something on price from this time next year.

One of the issues prompting change is the need to adapt to the new WLTP testing system just introduced. Because it is a more stringent test, it means cars have higher emissions ratings. That’s not because cars have suddenly started to emit more but because the new system is a truer reflection of the volume of harmful emissions coming out the tailpipe.

As you know, road tax and VRT are based on the emissions of new cars since 2008 so higher values will impact on price and cost. 

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