Monday, May 12, 2008

VRT and Motor Tax, Cowen will still be singing all the way to the bank!

Last December when Brian Cowen delivered his last Budget as Minister for Finance many people were watching to see what he would do on stamp duty, how much he would increase social welfare or how much in excise duty he would add to drink and cigarettes. However in the midst of all this stuff, Cowen also announced a major reform of Vehicle Registration Tax (VRT) and motor tax. VRT is a tax you pay for registering your car, but effectively it is a tax on a new car purchase, while motor tax is an annual tax which goes into the Local Government Fund, which is distributed to Local Authorities.

At present all cars are taxed on the basis of engine size. However from July 1st 2008 all cars purchased will be taxed based on their CO2 emissions ratings. Therefore cars that are cleaner and more environmentally friendly will be taxed at a lower rate and the gas guzzlers will face increased taxation. The change in price for some cars will not be much, but for others it could be quite a lot more. For example, a Toyota Avensis 2.2 D4D should based on my calculations (all prices quoted by me here need to be confirmed by Revenue Commissioners as I am going on the basis of information available to me on third party websites) would be liable to less VRT and therefore reduce in price from €35,105 to €31,896 a drop of over 3k. BMW assert that the price of some of their models will reduce by up to €8,000 as a result of the changes, although some of their models may also increase in price. Of course some models will increase in price, for example one of the most popular sellers in Ireland, the Ford Focus will increase by about €500. The gas guzzling Land Rover Discovery will increase by about €5,500.

New regime could be good for sale of some BMW models!

Likewise the motor tax charges on all newly registered car from July 1st 2008 be based on a CO2 emissions rating. There will be 8 bands and again the annual motor tax charge will change significantly for some models. The aforementioned Toyota Avensis will reduce from €791 pa to €431, a cut of €361. Others will increase, for example a Saab 9-5 2.0t petrol will increase from €591 pa to €1000. In general it seems diesel cars will become cheaper and the percentage of diesel car sales should increase from the current 20%. Cars registered bought between Jan 1st and June 30th 2008 can be taxed at the engine size rate or co2 emissions rate depending on which is lower.

Car sales are down over 9% on this time last year. Some blame the confusion over the new system, although many people may be holding out for their choice to reduce in price.

I have two main concerns. Firstly the lack of information on the changes available on the relevant Government website. The Department of Finance, Revenue Commissioners and Department of the Environment only have generic information on the new system. As a potential purchaser of a new car now or after July 1st, I wouldn't get any information on the impact of the new VRT and motor tax system on any of these websites. The only information available I am aware of is on third party websites. The Society of the Irish Motor Industry have a VRT and motor tax calculator on their website while also have a VRT price calculator. While this information is welcome and very useful, neither bodies have the final say on changes and cannot probably state 100% that all calculations they give will be the ones applied by State bodies.

The other issue I am concerned about is making sure that the reduction in VRT is passed onto the purchaser. If this measure was introduced to encourage motorists to buy greener cars, then the savings should be passed on fully to the consumer in the same way that I am sure the increases in VRT will be. This is something I plan to follow up on.

VRT brought in €1.4bn and motor tax about €1bn to the state coffers in 2007. I am sure whatever consumers do, the Brian Cowen and the Government will continue to sing all the way to the bank!

Our new Taoiseach Brian lashing out the verses in Clara!