First of all I would like to congratulate Tonio Fenech not only for his appointment as Minister of Finance but also, together with our Prime Minister, for successfully steering our country ever closer to the European fold both in political and economic matters.

I read with caution and scepticism that CO2 emissions-based car taxation is going to be Mr Fenech’s priority. The European Commission’s infringement procedures against Malta on used car import taxation methods has to be the instigating factor that forced the government to contemplate changing the car taxation system. Mr Fenech’s opinion on the matter one year ago can be reviewed by listening to his parliamentary intervention (starting after five minutes) from the recording: http://www.parliament.gov.mt/information/Parliament%20Audio%20Files/512%2028-03-2007%201800hrs.mp3

Taxation of CO2 emissions in the context of climate change is very appropriate. But is the spirit of environmental concern the main guiding brief for a new car taxation system? Is the new taxation system going to be applied only to private passenger cars or to all road vehicles? As regards the polluter pays principle, is this going to be applied only to passenger car users? What is going to happen to the numerous pick up trucks and vans that are used as passenger cars but have been advantaged with favourable registration taxes and road licensing tariffs? Are “competitiveness” arguments going to be used to exempt aged and overworked heavy goods vehicles and commercial vehicles from the polluter pays principle? Discussions with stakeholders must have been carried out except with the stakeholders that have the biggest number of members – the consumers!

The current registration tax system had and still has only one aim, and that is to have the same effect as import duties and as a fiscal tool to reduce imports of this class of goods, passenger cars. I believe that this will remain the aim of any car tax changes. We will see. This is a vestige of archaic closed market policies. The result of such policies is the oldest vehicle fleet in the EU except for Hungary and Bulgaria – some consolation that is. It has done nothing to reduce the car fleet, this can only happen with a mentality change en masse by the Maltese and when the public transport system offers a viable alternative to the passenger car. The provisions in the Registration Tax Law for used car imports have been tailor-made as a protectionist tool to favour new car importers. Such provisions have reached the peak of what is morally acceptable but have not been effective in stemming the onslaught of the increasing market share of used car imports. There is therefore the need to also consider disincentives for owning and using older vehicles and a drastic reduction in overall taxation of cars at importation or registration to offer an incentive to upgrade to a newer vehicle. Without a viable public transport system (including taxi service), increasing tax on older vehicles will diminish popular support for the government.

The importance of including a road vehicle licence tariff based also on EURO emissions standards classification is not to be overlooked. Vehicle emissions include CO2 (reducing this helps to save the planet) but also oxides of nitrogen, volatile hydrocarbons including benzene derivatives and particulates (reducing these increases our level of health). All these emissions increase with the age of the motor and the age of its technology. A 20-year-old vehicle may have less than twice the CO2 emissions but 15 to 30 times all other noxious emissions of an equivalent new vehicle.

There is one major problem in reconciling emissions based taxation and the polluter pays principle. Once a hefty sum is paid for a vehicle with high CO2 emissions at registration, there is no disincentive not to use that vehicle as much as possible. This can only be achieved with increased fuel tax. Raising fuel tax and the price of fuel will not only be fully compatible with the polluter pays principle – without exception and favouritism – but will be a factor in forming the choice of the consumer in selecting a fuel efficient vehicle.

Unless new cars are drastically reduced in price by removing hefty taxations at importation and registration, they will never be competitive enough with used car imports. It is only a matter of time before the Commission’s infringement procedure will come home to roost. Mr Fenech is fully aware that there is no contest here; otherwise there would have been no attempt to change the current car tax system. Whatever the change, past tariffs paid on new vehicles will always be the factor which determines the tax due on a used car EU import as provided by Article 90 EC.

Albert M. Bezzina

MOSTA