Dr Mariosa Vella Cardona, a correspondent in another newspaper, pointed out that the Maltese road vehicle registration tax law might have discriminatory effects on used cars imported from other EU member States (http://business.timesofmalta.com/article.php?id=4598). This stems from the imposition of the “minimum tax” clause by the registration tax law. Dr Vella Cardona wrote: “It all boils down to proving in each and every particular case that the amount of tax being imposed … exceeds the amount of (residual) registration tax (Rt) incorporated in the value of a similar used car already registered in Malta.”

To prove this (in court) for a particular used car imported from an EU member State, one must:

* Be in possession of a current, popularly accepted, market value (MV) of a similar used car already registered in Malta.

* Know the retail price (RP) of the “similar car” when sold and registered in Malta when new, in the same year as the year of manufacture of the used car import.

* Know the amount of Registration Tax (RT) paid on that new “similar car” when registered in Malta.

These three points present surmountable technical difficulties. Resolved in the manner described below these points can be used to arrive at a real level of “residual” registration tax (Rt), complying with Article 90 EC while remaining within the provisions of the rest of the Road Vehicle Registration Tax Law, unfair as it may be. The maximum amount of tax “Rt” that can be imposed on registering a used car imported from an EU member State is given in Equation 1: Rt = (MV / RP) x RT.

The Market Value (MV) in Malta of a used car

Since the local used car market is small, there is no official or universally accepted price guide for local used car prices. In the UK, Parker’s Guide is available to the consumer while the more comprehensive Glass’s Guide is utilized by the used car trade in the UK, in parts of Europe and in Malta by the Licensing and Testing Department of the ADT. Some idea of the market value of a local used car can be obtained by looking up the asking price in the classified adverts as well as local web sites. However, it is difficult to obtain comparative information because apart from the car model, local adverts rarely include engine model, year of manufacture, accessories, tachometer reading, general condition and asking price. An objective overview of the market value of individual second-hand cars from such sources is well-nigh impossible. The solution to this problem is to adopt the universally established valuation used by Maltese car insurance companies who factor in a 10 per cent annual depreciation. This figure is lower than that in the UK (15 per cent) and some other EU countries. In case law from the European Court of Justice, the same court did not accept a car’s depreciation of seven per cent or less as realistic. An annual depreciation of 10 per cent for Malta is probably just right.

The Retail Price (RP) of the similar* new vehicle

(*similar to the used car import in question)

A compilation of past retail prices of new cars sold in Malta going back at least 10 years is not available. Guides like Parker’s Guide include the UK retail price of vehicles sold up to 10 years before but this cannot be used to give an estimate of the retail price in Malta for the same year. A solution would be to use present day retail prices of a new vehicle, as sold in Malta, which is similar to the imported used vehicle. This will work for imported used cars that are up to around five years old and will likely have a present day version of the same model still on sale. Problems will arise when one tries to obtain original Malta retail prices for older specialist cars imported by enthusiasts. In such cases the retail price of a present day equivalent vehicle should be used as a starting point. 3.5 per cent to four per cent for every year of the imported car’s age is then deducted from this present day retail price. The “yearly” percentage deduction can be considered to be based on the yearly inflation rate or change in purchasing power. Stepped changes in retail price usually occur whenever there is a model change.

For example: The retail price of a 2006 model BMW 318 is Lm20,000, the estimated retail price of a BMW 318, 1984 model is Lm20,000 less 22 years x 3.5 per cent per year = Lm6,600.

It was actually less than Lm6,600 because of the favourable exchange rate of the DM to the Maltese lira at the time. With the use of this system, vehicles over 30 years old practically pay no registration tax and that is how it should be because imported cars of that age can only be collectors’ cars and unlikely to be used every day. Though this last statement will raise a few eyebrows in many quarters, this is in fact what the interpretation and spirit of Article 90 EC requires. Vintage or classic car enthusiasts are still “being taken for a ride” in spite of recent amelioration in taxation levels for these classes of vehicles.

The Registration Tax (RT) of the similar vehicle registered new in Malta

The RT of a new vehicle is not usually known simply because it is based on the CIF (cost, insurance and freight) which is considered to be a commercial secret. This excuse cannot be used to deprive the consumer from being able to appeal the State’s imposition of its taxation methods if it goes against the provisions of EU regulations. In these circumstances, as part of the formula for estimating the residual RT (Rt) on an imported used car, a reasoned estimate of the RT on a new vehicle is presented to the court. The same court should accept this reasoned estimate and, in the interest of justice, the onus should be on the State to prove that the reasoned estimate is significantly wrong. The court can request this as the State has records of the actual amount of registration tax paid on every imported new vehicle. To encourage transparency, these records should be published and made available to the consumer and the courts may not be burdened with more litigation. If the State argues that the divulging of registration tax paid on individual vehicles is not possible because it is protected by law, the court should accept the appellants reasoned estimate for residual RT.

In order to arrive at the “reasoned estimate” for the RT on a new car sold in Malta, one has to first estimate the CIF of that vehicle. This can be achieved using the following formula: Equation 2. CIF = 10000RP / {(100 + VAT) x (100 + TRcc + PMU)}

RP is the retail price of the new “similar car” less add-on expenses (road licence, registration plates, rust proofing etc.) and corrected for year of sale (as above, deduct 3.5 per cent to four per cent per year of age).

VAT at 15 per cent before 2004 or 18 per cent thereafter. The selection of the VAT rate for use in equation 2 depends on the year of manufacture of the used car import.

TRcc is the percentage tax rate as provided by the Road Vehicle Registration Tax Law for private passenger cars according to engine capacity (cc).

PMU is the local dealer’s percentage profit mark-up over the CIF. This also has to be estimated (20 per cent to 35 per cent depending on vehicle type) because, like CIF, it is also a commercial secret. It is to be noted however that an error deviation of 10 percentage points from the true “secret” PMU will only amount to 4.5 per cent to 5.5 per cent error in the CIF and RT estimates. Lower PMUs are likely in small popular cars with large volume sales while high PMUs are likely on larger luxury or sports vehicles. A 20 per cent profit mark-up may be applied in the equation in cars retailing less than Lm6,000, 25 per cent for price range Lm6,000 to Lm15,000, 30 per cent for Lm15,000 to Lm28,000 and 35 per cent for cars retailing at over Lm28,000. Price ranges are for present day prices, so these have to be adjusted with the 3.5 per cent to four per cent yearly deduction discussed above.

After obtaining an estimate of the CIF from equation 2, registration tax ‘RT’ is then simply calculated using the percentage tax rate (TRcc) as provided by the Road Vehicle Registration Tax Law according to engine capacity (cc), from Equation 3. RT = CIF x TRcc / 100

The RT obtained from equation 3 is utilised in equation 1 (Rt = (MV / RP) x RT) to present a reasoned estimate of registration tax due on the importation of a used car from an EU member State.

Let’s go for it!