DR ALBERT M. BEZZINA

The new taxation method imposed on passenger cars retains, to a large extent, features of the old system. Indirect import restriction by fiscal means has been carried over into the new system. Vehicle renewal is a recognised means of reducing overall car fleet emissions, but while Malta’s passenger car fleet has a high average age, a policy of vehicle import restriction is incompatible with fleet renewal.

The new car tax regime consists of a registration tax (RT) and an annual circulation licence fee (ACL). Registration tax is now calculated from official CO² and particulate emissions, vehicle length, registration values (RV) and coefficients (called % value). The annual circulation licence fee is based only on vehicle emissions or, if the vehicle was registered before 1 January 2009, on engine capacity.

In some aspects the new tax regime is a step in the right direction. It should be an incentive for consumers to choose more efficient vehicles. This is, however, as far as fairness and environmental incentives go. Incorporating a registration value to calculate RT has no bearing on the environment or the polluter pays principle. Similarly, the concept of taxing a vehicle according to its length will have a questionable effect on traffic congestion and surely car value has no relation to length or to traffic congestion.

Using the value of a vehicle to calculate RT is reminiscent of the pre-EU accession era when import taxes, levies or tariffs were used to reduce demand for imported goods. RT so calculated doubles up as a luxury tax. Cars from premium brands have more efficient, cleaner running engines and incorporate greater safety features but, as expected, also have a higher registration value. “Premium” cars, therefore, attract higher RT than vehicles of “normal” brands. In this situation, the polluter and the unsafe would be paying less! Readers – and the authorities – are invited to read what the EU had to say when Australia recently introduced a luxury car tax.

http://www.aph.gov.au/Senate/committee/economics_ctte/tlab_luxurycars_08/submissions/sub11c.pdf

Use of particulate emission levels to adjust RT for diesel cars, falls victim to the same shortsightedness by incorporating RV. Cleaner running diesels from premium brands end up attracting higher RT. Though the concept of taxing particulate emissions from diesels is essentially good, it is only applied to passenger cars and, I am convicted, has been primarily devised to off-set the inherently lower CO2 emissions of diesel cars which would otherwise attract lower RT than equivalent petrol powered cars. This provision is hypocrisy at its best when one considers that commercial and public transport vehicles cause at least 75 per cent of diesel particulate emissions. During the Budget speech the Minister of Finance invoked us to understand the need to tax cars according to emissions for the sake of our health (thumping on his chest while saying so). Will commercial and public transport vehicles pay the same price per gram as passenger cars, or does the need to compete takes priority over our health? Crocodile tears then, from the Finance Minister.

As far as I know, nobody has published the actual 2008 to 2009 price change of individual car models. A reduction in vehicle prices is expected with the new car tax regime except for cars with larger engines, which will become more expensive. Class 6 passenger cars (NSO passenger car classification – engine capacity greater than 2000cc) account for 3.6 per cent of passenger cars registered annually or about 330 units. If the new tax disincentives for large engines had to have its full effect on consumers, 330 higher polluting cars would not be added to Malta’s 290,000 vehicles in 2009,which is a mere 0.1 per cent! Let us be realistic, registrations of these Class 6 cars is unlikely to go down to zero and the impact on total road transport emissions will be insignificant.

Class 5 cars (1801cc to 2000cc engines) may experience a small increase in price but this class would be unlikely to show a noticeable decrease in registrations. They account for 7.6 per cent (690 units) of annual passenger car registrations. Consumers going for class 5 vehicles are unlikely go for anything else. It is a lifestyle choice. These vehicles include MPVs, small SUVs, compact executive saloons and station wagons. Other vehicle types powered by smaller engines will not satisfy the need or desire for this class of vehicles.

There should not be a change in consumer trends in Classes 2, 3 and 4 vehicles (1301 cc to 1800cc). Consumers will just take favourable price changes in their stride.

The greatest reduction in prices is expected for the smaller vehicles. This will promote an increase in Class 1 (less than 1300cc) vehicle registrations, which till 2007 accounted for 64 per cent (5,700 units) of annual registrations. The surge in Class 1 car sales will be greater than any reductions in other car classes due to new first time owners and those opting for a second car, as the low prices would come within range of their finances.

All said, the pattern of passenger car sales in Malta for 2009 is likely to be affected more by a reduction in consumer confidence and the prevailing world economic crisis rather than the new changes in RT and ACL.

I have said it and so have others. Fuel tax is the only fair and true way of taxing the polluter. Once a consumer has purchased a particular vehicle, the registration tax paid and the ACL due will remain the same irrespective of vehicle mileage. There is no incentive to use alternative means of transport once the vehicle is on the road. Substituting registration tax revenue (or a substantial part) with fuel tax would have gone a long way to truly make the polluter pay according to consumption and favour alternative means of transport. The government has lost a golden opportunity to painlessly introduce a higher fuel tax as international fuel prices went south, doing away with value oriented car taxation practices.