ACIM (Association of Car Importers of Malta) had revealed that when the association asked the government to consider a drop in revenues from registration tax so that small clean and new cars can be made more accessible to everyone, the government refused on the grounds that it couldn’t afford to. Anybody who believes that registration tax on road vehicles can abolished without some other government revenue manoeuvres will be disappointed. Unless the various parties involved have other hidden agendas, I see no reason why the taxation changes proposed hereunder cannot be implemented as described or at least used as a framework for a new system.
The proposal describes a tax system that is revenue-neutral to the Government (there should be no more talk then that it cannot afford the change). The tax structure will change so that high polluters pay more than low polluters, albeit in a reasonable manner. There will be no cross-subsidisations. There will be a slight increase in yearly expense for all vehicle users but this will be counteracted by a reduction of other costs imposed on the consumer as a direct consequence of the high registration tax. These include bank loan servicing and insurance premiums. At the end of it all, there will be savings of hundreds and even thousands of liri whenever one buys a road vehicle.
The proposal will include:
Fuel Tax (FT) is increased.
Registration Tax (RT) or fee is reworked anew. Ad valorem calculations based on CIF is effectively acting as a luxury tax, equivalent to restrictive import taxation and a consumer tax rolled into one. Excise tax on any other imported goods comes nowhere near the rates imposed by the current Road Vehicle Registration Tax law. This is plainly unjust and must be terminated. It is a discriminatory tax on a class of goods that has no local manufactured equivalent. A fixed and reasonable tariff should be based on manufacturers’ official CO² emissions figures (grams per kilometre). Manufacturers’ official fuel consumption figures (the combined cycle – Kms/lt of fuel) may have to be used for older vehicles already on the road when CO² emissions figures were unobtainable. Vehicle weight is also included in the calculations made. The idea of placing a tariff based on the weight of vehicles at importation is to allow investment and the creation of facilities for processing end-of-life vehicles. These facilities are practically non-existent in Malta.
Annual Circulation Tax (ACT) and a yearly CO² emissions tax. All vehicles registered after a taxation changeover date would have to start paying a yearly CO² emissions tax and a Circulation Tax (ACT) in full. ACT will replace the current vehicle licence. All present registered vehicles with a TF (meaning they were Tax Free at importation) or K number plate will pay the same taxes. All vehicles registered more than eight years after a taxation change-over date will also pay the full taxation but any vehicle which is more than 10 years old, whatever the date of registration in Malta, will have a percentage surcharge of five per cent on every extra five years of age. In order to cushion the effect of a sudden withdrawal of registration tax on owners who have just bought a road vehicle, reduced annual taxation is suggested in a two-tier tax relief over two four-year periods. Special and particular provisions are also envisaged for well-kept and reconditioned old, classic, vintage or historical vehicles. Penalties for badly running engines or fluid leaks should also be imposed.
Methods used in arriving at the taxation levels.
Use was made of the road vehicle statistics published in 2003 by the National Statistics Office (NSO). This source showed that revenue in the year 2003 from motor vehicle licenses amounted to Lm 11.3 million while that collected from RT amounted to Lm22.8 million. VAT at 15 per cent on the latter would have raised a further Lm3.42 million. This gives a total of Lm37.52 million.
In 2003 there were around 270000 registered road vehicles of all types (including 67,500 vehicles, which are commercial, agricultural, coaches, buses, minibuses, taxis, hire cars and motorcycles). For the sake of simplicity, calculations are based on 240,000 passenger road vehicles
Major deficiencies in the Malta road vehicle statistics data include; (i) no data on vehicle CO² emissions or fuel consumption, (ii) taxation and vehicle classification are based mainly on engine capacity irrespective of vehicle weight, age of vehicle or year of manufacture and (iii) a rather basic separation of weight and engine capacity category groupings. Reasonable extrapolations and assumptions of available data had to be made.
For a road vehicle category profile based on engine capacity, data from 1998 to 2003 was used, while the profile for vehicle weight, data from 2000 to 2003 was utilised. I have recognized some limitations of the assumptions used but in the absence of more detailed data available to the public there is no other choice. The readers themselves can judge if the assumptions used are realistic.
Proposed tax weighting and method of calculation
Annual Circulation Tax – Lm14.1 million p.a. See table 1.a and 1.b.
2/3 of the tax is based on engine capacity (= CO2 emissions tax).
1/3 of the tax is based on vehicle weight (heavier vehicle = increases road damage and also uses more fuel).
CO² Emissions Tax – Lm 5.2 million p.a. See table 2.
The aim is to base this tax on CO2 emissions or official, combined cycle fuel consumption figures. For calculation purposes I have again used engine capacity as the only NSO data available on the local road vehicle population. Emissions vary when the same engine is fitted in vehicles with different weight. It is therefore worth noting that the weight factor used in the ACT and Fuel Tax partially compensates for this.
Fuel Tax – Lm7 million plus Lm3.5 million p.a. in revenue from VAT on old RT less Lm1.35 million VAT on new RT (see below). Total: Lm9.15 million. Minister Austin Gatt had proposed that putting fuel prices up by Lm0.20 per litre would have raised Lm50 million to compensate for losses at Enemalta. To raise Lm9.15 million would need an increase of Lm0.0366 (3.7 cents) per litre on all fuels. This increase would amount to an extra 7.5 to nine per cent on the drivers’ fuel bill. From the consumers’ point of view, it is relevant to note that nine per cent is over one fifth of the increase in the price of diesel in Malta over the past four years and one third that of petrol. To avoid increasing the costs to public transport providers and tariffs to commuters, a controlled method of rebate based on secured odometer readings can be introduced during a transitional period.
Registration Tax. – Lm7.5 million p.a. (To adjust downwards when opportune) plus Lm1.35 million VAT on proposed RT. Total: Lm8.85 million.
This is based on vehicle weight and vehicle CO² emissions. In lieu of unavailable CO² emission figures, engine capacity data is used. Taxing the vehicle weight at importation helps to cover costs when the vehicle is processed according to the EU’s Vehicle End of Life Directive. A tax of Lm350 per ton is proposed. In the period 1999–2003, an average of 14,000 tons of motor vehicles a year were imported. This redered Lm4.9 million in revenue.
The CO² emission based taxation at registration will consist of 11.4 times the CO² emissions tax that that vehicle will be paying when it is on the road. This will net another Lm2.6 million from 10500 vehicle imports per year.
Total revenue collected from all four taxes amounts to Lm37.3 million annually. The following tables (1a, 1b and 2) show what the vehicle owner will expect to pay instead of the current road tax (add figures in these three tables according to vehicle category).
Tables 3 and 4 show how NSO data has been used to work out the proposed taxation structure.
I hope this article will stimulate public debate, give an alternative idea and raise any objections so that a final solution can be hammered out. Space in the media is limited and much more detail is available in working out this proposal. Interested parties can ask for a more detailed plan from [email protected]. Comments, criticism (preferably constructive) and questions are also invited.
Dr Albert Bezina
Mosta