Finance Bill 2001
Tax Strategy Group TSG 00/25
Vehicle Registration Tax
Purpose of Paper
1. This paper (a) sets out the current position regarding VRT, reflecting the effect of the restructuring announced in the December, 1998 Budget and (b) raises issues regarding the VRT on commercial vehicles.
2. Vehicle Registration Tax (VRT) is a valuable source of revenue for the Exchequer. The yield from VRT in 1999 was ?607.3m compared with ?484.4m in 1998. The yield to the end of August, 2000 is ?650.8m.
3. Vehicle Registration Tax has applied with effect from 1 January 1993 and replaced the previous Motor Vehicle Excise Duty which was abolished under the EU Single Market rules. VRT is payable on first registration of the vehicle in the State and applies to both new and second hand cars. In the case of new models, it is paid at dealer level and the customer is usually not aware of the large tax take included in the purchase price, particularly if there is a trade-in involved. On personal imports - generally of used vehicles - the tax take is more obvious as the VRT is paid by the individual, on registration, immediately the car is brought into the State. The tax is applied after VAT, whereas the previous motor vehicle excise duty formed part of the VAT base.
4. Ireland is not the only Member State which has a tax on vehicle registration. Although the basis for charging tax in the 8 other EU countries (that have a registration tax) varies and is therefore not directly comparable, the highest rates are applied in Denmark, Finland, Greece and Portugal. Germany, Luxembourg, Sweden and the UK do not charge registration tax and France and Italy charge the tax at a nominal rate.
5. There was no change made in last year‟s Budget to VRT. The rates for cars were restructured in the December 1998 Budget and took effect from 1 January 1999. The new three band structure was introduced both to raise revenue and to begin to tackle the environmental damage being caused by the motoring sector. It was designed to bias the VRT system more towards the purchase of smaller cars and/or against the purchase of larger cars.
6. There was a very vigorous campaign to have the changes reversed prior to their coming into effect (on 1 January 1999) and also during the course of the Finance Bill discussions. This campaign was mounted mainly by SIMI and its members. Members of the public also wrote in to voice their opposition. Despite predictions to the contrary, from the motor trade, the new car sales market continued to grow in 1999. That year, total net registrations at 172,456 were 28,449 (19.76%) ahead of 1998 and 37,241 (27.54%) ahead of 1997. This year, car sales have continued to soar - the figures for the first six months of the year exceeded the total for the full year in 1999. Total net registrations to end August 2,000 stand at 207,928. However, the restructuring has been somewhat successful in that there are now more sales in the „less than 1400 cc' category
than heretofore - 64% of net registrations in 1999 as opposed to 57% in 1998, and 66% of net registrations to end August 2000. This may also reflect increased numbers of first time buyers of new cars entering the market in this category.
Year 0 - 1400cc 1401cc - 2000cc 2001+cc TOTAL
1998 82,227 55,559 6,221 144,007
(57%) (39%) (4%)
1999 110,780 57,148 4,528 172,456
(64%) (33%) (3%)
2000 137,702 64,728 5,498 207,928
(end Aug) (66%) (31%) (3%)
7. By way of contrast with the new car market, registrations of used cars continue to decline. In the calendar year 1999, net registrations numbered 30,550, down from 37,608 in 1998. This year, the figure to end August, 2000 is 13,849.
Private Motor Cars - Car Ownership
8. According to the Society of the Irish Motor Industry (SIMI) figures, private car ownership in Ireland has risen in recent years to 31 cars per 100 head of population. Should the present favourable economic climate continue, and in view of the relatively young age profile of the population, it is expected that there will be an inevitable increase in that car ownership ratio over the next number of years bringing it into line with European norms. The car ownership in the UK is over 45 per 100; in Northern Ireland it is 36 cars per 100.
9. As mentioned, a restructuring of the bands and the rates was announced in December 1998 Budget and took effect from 1 January 1999. The current rate structure is as follows:
- cars up to 1,400 ccs 22.5% - no change
- cars 1,401 to 2,000 ccs 25% - up from 22.5%
- cars 2,001 + ccs 30% - up from 22.5% in respect of cars up to 2,500
ccs and up from 28% in respect of cars 2,501 + ccs.
10. The table hereunder sets out details of net registrations of cars from 1 January
1993 to date:
NET NUMBER OF CARS REGISTERED
YEAR NEW CARS USED CARS (IMPORTS)
1993 66,724* 23,823
1994 80,203 35,491
1995 86,287 38,742
1996 113,844 41,530
1997 135,215 37,444
1998 144,007 37,608
1999 172,456 30,550
2000 (end August) 207,928 13,849
* The data for 1993 includes cars registered under the old excise regime prior to the
introduction of VRT
11. The table hereunder sets out details of the net VRT receipts from 1 January, 1993
VEHICLE REGISTRATION TAX - NET RECEIPTS
YEAR NEW CARS USED CARS OTHER VEHICLES
1993* 172.8 25.2 6.6 204.6
1994 222.1 40.4 8.3 270.8
1995 231.7 48.0 9.1 288.8
1996 288.6 56.2 8.7 353.5
1997 337.8 48.6 9.4 395.8
1998 422.0 51.2 11.2 484.4
1999 544.0 48.6 14.7 607.3
2000 (Aug) 616.2 22.8 11.8 650.8
* The data for 1993 includes cars registered under the old excise regime prior to the introduction of VRT.
12. The TSG may wish to consider whether further adjustment is required or desirable to the current three band structure in this year‟s Budget.
13. Commercial vehicles such as vans, trucks and lorries are be classified into two distinct groupings, essentially as “light commercial vehicles” and “heavy duty
commercial vehicles”. These classifications are further divided into:
Category N: vehicles used for the carriage of goods and having a maximum weight not 1
exceeding 3.5 metric tonnes - light vehicles.
Category N: vehicles used for the carriage of goods and having a maximum weight 2
exceeding 3.5 metric tonnes but not exceeding 12 metric tonnes - heavy duty vehicles.
Category N: vehicles used for the carriage of goods and having a maximum weight 3
exceeding 12 metric tonnes - heavy duty vehicles.
14. All commercial vehicles are charged a flat rate VRT of ?40. This amount has remained static since 1 January 1993 although the transport and distribution sector will have benefited from reductions in corporation tax rates since then. The table below shows the gross number of new and used commercial vehicles registered since 1998.
YEAR NEW USED
1998 31,948 13,614
1999 39,525 16,635
2000 (end Aug) 39,596 9,193
15. It could be argued that the ?40 rate should be increased in view of the environmental damage caused by such vehicles being both, in the main, heavier and emitting more polluting exhaust gases than passenger cars. On the other hand, the road haulage industry is encountering problems because of the rise in diesel prices. Other EU Member States have taken measures to assist this sector. The TSG may wish to discuss the VRT rate for commercial vehicles.
Four - Wheel Drive Vehicles
16. The TSG are being notified of a long-simmering problem with the VRT classification of certain commercial vehicles (i.e. jeep-derived 4x4s). There have been disputes over the categorisation of various models into Category B/Category C since 1992. A category B vehicle means “a vehicle (other than a category A vehicle, a motor-
cycle or a listed vehicle) which is of not more than 3 tonnes unladen weight and which has a roofed area to the rear of the driver‟s seat the floor of which is less than 2 metres in length when measured in such manner as may be approved by the Commissioners”
(Finance Act, 1992). The rate of VRT for a Category B vehicle is 13.3% of the open market selling price (OMSP) of the vehicle. A category C vehicle “means a vehicle other than a category A vehicle, a category B vehicle or a motor-cycle” (Finance Act, 1992).
The rate of VRT for a Category C vehicle is a flat rate of ?40. It is the desire to qualify as a ?40 vehicle that is at the root of the problem.
17. The main factor which currently determines VRT classification is the length of
the floor of the roofed area to the rear of the driver‟s seat. If that length is less than 2 metres, the vehicle is in Category B; if it is 2 metres or more it is in Category C. When the 2 metre rule was introduced, only one vehicle (the Land Rover Defender 110) qualified for Category C rating. However, over the years the trade have adapted vehicles to meet the 2 metre rule by, for example,
; extending seat runner rails to push the driver‟s seat artificially forward,
; fitting smaller steering wheels,
; fitting slimmer seat backs,
; removing seat stuffing,
; removing dashboard fittings,
; welding in new floors to raise floor to seat level.
In certain situations, the adapted vehicle would not be capable of being driven in this revised and artificial format in which it has been presented for measurement. The Revenue Commissioners are considering whether proposals for Finance Bill 2001 would help resolve disputes. One manufacturer is proceeding to legal challenge here.
Department of Finance
29 September, 2000