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Matthew Vella
Everyone wants cheaper cars on the market. And the solution may be at hand for those who want lower registration tax, the main fiscal component responsible for pushing up car prices.
Brussels wants registration tax to be completely abolished by 2016, claiming car prices will fall by 10 to 25 per cent if registration tax is cut just by half across the EU.
Instead, it will replace the tax with a CO2-based system to penalise those who harm the environment more: the more carbon dioxide, the main greenhouse gas affecting climate change, a vehicle emits, the more its owner has to pay.
The European Commission wants to achieve its Kyoto Protocol deadlines by using the polluter-pays-principle to make it more expensive for heavy polluters to keep their cars on the road.
In reality, the registration tax system works on similar lines. The more powerful the engine, and the more fuel it consumes, and the greater the chunk of taxation levied on its value. In Malta, every brand new car imported from the EU is levied with a minimum tax equivalent to 50.5 per cent of its cost, insurance and freight value when it arrives on the island.
Malta has the fifth highest car ownership in the world, with two cars for every household (538 per 1,000 inhabitants). In the past eight years, the use of the unpopular public transport service has decreased by 20 per cent. In 2003, road transport was responsible for at least 25 per cent of harmful CO2 emissions from a total emission of 2,600 kilotons.
Getting the Maltese to curb on their CO2 emissions may be hard. Transport Minister Jesmond Mugliett wants a six-kilometre bypass to cut straight through from Xemxija into Manikata, where a 499-metre tunnel will emerge at Mellieha, part of the Trans-European Transport Road Network. Mugliett says it will improve the environment by decreasing congestion on Xemxija Hill.
Alternattiva Demokratika, the Green party, is one of the supporters of the CO2 tax, claiming that consumers can be pushed to purchase electrical cars or hybrids, instead of petroleum-based vehicles.
But hopes that making cars more expensive to keep on the road will push consumers to buy greener engines, may not look as promising. The big car manufacturers are making heavier and chunkier vehicles, and hybrids are still destined to become the exclusive choice of upwardly mobile sandal-wearing environmentalists. In the UK, the future is set for more high-efficiency petrol models and hydrogen engines.
AD chairperson Harry Vassallo knows that alternative fuel vehicles are “still out of the game” when it comes to consumer price. The Toyota Prius, the world’s first petrol-electric hybrid vehicle, is the green car of choice for Hollywood celebrities like Cameron Diaz, Tom Hanks, and Billy Cystal. “On a long-term running cost basis, they are competitive. I guess it’s a case of only the rich getting richer. Electric vehicles are another proposition. Their handicap in the market is poor aesthetics and low visibility, and advertising.”
So how do you get people to take better informed decisions on the effects of private transport on the environment? For Vassallo, who imports electric motorbikes, consumers are not the ones to lead a culture change: “As long as they are exposed to the sector’s powerful advertising in a virtual vacuum, they are not going to begin to think of alternatives.”
And the government’s contribution doesn’t seem to help either. “Shooting the Connections Project in the head as the Prime Minister did in 2005 speaks volumes about his openness to any leading edge project in transportation in Malta. Quite the other way, the government is committed to providing motorways such as the one under Manikata to please the thrust of consumer desire. The country wants to be California and nobody dares say that it is not quite sane to have such ambitions on an island 17 miles long.”
What is sure is that higher registration taxes make drivers more resilient in replacing their old cars with newer, less polluting engines.
That is why used car imports to Malta have managed to cut into almost 50 per cent of the market previously ruled by the new car importers. And because they enjoy capped registration taxes, the Maltese system does not even function as a proper polluter-pays regime.
Used cars imported to Malta for resale, which would have spent years on the road and are less ‘cleaner’ than cars straight off the production line, have their registration tax capped. A used car with a 1,300-1,500cc engine is taxed at 53 per cent of its value, but the charge is capped at Lm2,200.
The Association of Car Importers has been at the forefront to get importers of used cars from Japan to pay higher registration taxes. In 2004, they won finance minister John Dalli’s favour. But the used cars, Japanese imports, are still popular choices for lower and middle-income earners.
The ACIM claims such importers should pay more for bringing in less cleaner engines. But they also want to stop the encroachment of the used car importers on their market – as agents of car manufacturers, they incur obligations to set up showrooms and providing experienced mechanics and after-sales services where the used car importers have none.
The biggest hope the CO2 tax offers is ultimately cheaper consumer prices on cars. The car industry is one of the “motors” of the European economy, generating 3 per cent of GDP and provides 2 million jobs directly and as many as 10 million indirectly.
But what the CO2 tax can also achieve is proper single market for car registration. The EU’s internal market is dogged by 25 different types of registration taxes and annual circulation taxes, creating problems for those migrating from one member state to the other where they have to pay registration tax in each country once domiciled there.
Registration tax provides some EUR340 billion in tax revenue for the EU-15, but regimes vary considerably – the tax for a 2000cc vehicle rages from just 1 per cent of the car’s value in Italy, to more than 170 per cent in Denmark.
The biggest effect on car manufacturers is that they are obliged to produce and sell different versions of the same model in various EU countries for purely tax-related reasons, making them unable to fully enjoy the benefits of the internal market.
The automobile is singularly one of the greatest polluters and oil guzzlers of the world, and yet making people pay more for their stain on the earth is possibly the only way of repositioning the market by getting manufacturers to produce more energy-efficient and cleaner engines.
mvella@mediatoday.com.mt
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