The Parliamentary Finance Committee will try to impose the distortions for the purchase of a new car today, which will be placed on the government bill which provides for their abolition. According to the positions expressed by the parliamentary parties, the Finance Committee is expected to propose by a majority in the plenary the zero tax for all vehicles. The state with this regulation will lose a total of around 15.5 million euros, 13.5 million from the loss of tax and 2 million euros from VAT on taxation, amounts which will be passed on with reductions in the final price. of the vehicle for the benefit of consumers.
Why not abolish
The majority is formed with the alliance DISY and DIKO. The two parties will support, as everything shows, the zero taxation and not its abolition. In order to form a majority so that the fees are zero even without abolition, DISY will support the position of DIKO which cites difficulties in collecting VAT on the value of the car. However, despite the concerns of MPs that had been expressed during the examination of the bill, the Customs Department had assured that mechanisms could be found to pay VAT to car importers without the need for the customs clearance process. With zero taxation, the import of cars and therefore the price of a vehicle will continue to be charged with customs duties, while the administrative costs will continue to exist, which would be eliminated in case of abolition.
AKEL and EDEK disagree
The AKEL, EDEK and Ecologists parties disagree with the decision of the majority, which supports the imposition of a staggered tax on vehicles so that those with high emissions can be taxed. Their position is that the zero tax will favor the sales of large-capacity cars that emit high emissions, while high taxes will be a deterrent to the purchase of such vehicles. Their proposals will be put in the form of amendments in next plenary next Friday, which will be asked to vote on both car excise tax and road tax.
AKEL and the Ecologists jointly propose that the vehicles that emit CO2 up to 150 gr / km have a zero rate and from there on between 151 and 180 to have a small tax of 25 euros per gr / km and from 180 gr / km and above, to be charged with 200 euros per gr / km.
EDEK suggests that vehicles that emit CO2 up to 150 gr / km to have a zero rate, from 151 to 180 to have a tax of 50 euros per gr / km, from 181 to 200 gr / km to be charged with 200 euros per gr / km and from 200 gr / km with 400 euros per gr / km.
By comparison, the tax currently imposed by the state is as follows: Vehicles that emit CO2 up to 120 gr / km have a zero rate. From 121 to 150 they are taxed at 25 euros per gr / km, from 151 to 180 they are taxed at 50 euros per gr / km and from 181 and up at 400 euros per gr / km.
Impairment will continue
The proposals for scalable taxation are considered by their rapporteurs to be aimed at the uniform taxation of both new and used ones, and therefore there will be an exchange rate. There is, however, an issue as the Road Transport Department (TOM) warns. In the event of non-abolition of excise duty, used imported vehicles will continue to be tax deductible based on their age. This is because according to decisions of the Supreme Court it is imposed by European case law and concerns the depreciation of the car. Therefore, with the existing proposals, the whole philosophy of the proposal of the Ministry of Transport is overturned, warns TOM.
Why abolish
As the ministry itself explains in a note accompanying the legislative proposal, the abolition of excise tax (also valid in the case of zero tax) will eliminate the distortions caused by this tax in the car market. In particular, as noted, the existence of excise tax, creates an additional burden on new vehicles and therefore increase their initial purchase price, while for used vehicles the tax is lower, as it decreases (mainly) with the age of the vehicle and is almost eliminated when the vehicle is very old. Therefore, it is added, the way the excise tax is applied, leads to a slow renewal of the fleet (either with new vehicles or with used younger ones) with negative consequences for both emissions and road safety issues, since the newer vehicles have the state-of-the-art passive and active safety systems.
Importers of used
With the abolition of excise duty, the importers of used cars have expressed their disagreement, which today have a comparative advantage in favor of new vehicles. This can be seen from the percentages with which the used imported vehicles prevail in the market. In 2018, 67% of the saloons imported in Cyprus were used. According to other statistics, the percentage of used diesel vehicles, which are even more polluting, in the total number of registrations is increasing rapidly. In 2018, out of the 32 thousand used vehicles imported in Cyprus, more than half and specifically 16.6 thousand were diesel. Also the average age of saloons (new – used) registered is increasing. From 2.62 years in 2014, in 2017 it reached 3.68. The average age of only used saloons registered, from 4.88 in 2014 reached 5.77 years in 2017.
In plenary
The bill on excise tax as it will be drafted today, together with the bill on road tax, as finally drafted by the majority of the Parliamentary Transport Committee (see table below) will be submitted to the plenary for approval next Friday, March 1st. At the road tax, AKEL is expected to submit an amendment to reduce the additional fee of 100 euros for diesel Euro 6.
Used large displacement
Our sources in TOM report that the trend among Cypriot car buyers is the purchase of large-capacity vehicles which usually have high CO2 emissions. 90% of the imported vehicles emit part of a mass over 150 gr / km. In 2018, around 1,000 such new vehicles were introduced and 5,500 used ones. Also in the same year, just 111 new vehicles were introduced with CO2 mass emissions of more than 200 gr / km and above, while another 506 used vehicles were introduced, of which 174 diesel. As the same sources point out, the existence of the excise tax and the simultaneous impairment for the used ones today effectively deprives someone of the option to choose a new vehicle of this category which will be in the Euro of his time, that is, it will emit less pollutants and no will need so much maintenance. The Ministry of Transport considers that the used car, especially the old one, is a car of “forced choice” where the tax on new ones is very high.
According to estimates, a Toyota Landcruser, when a new one is purchased, is subject to a tax of 15 thousand euros. The imported used car for two years with 10 thousand euros, when imported at the age of five is taxed with an amount of around 6 thousand, eight years with 4,866 euros, 12 years with 2,283 euros and if it is over 15 years with 853 euros. With the taxation proposed by DISY and DIKO, the excise tax of the specific vehicle will be eliminated for both the new and the used ones. With the gradual taxation of AKEL, the excise tax on the new one will fall by about half (7,150 euros) as well as the used ones. The two-year-old will pay 4,791 euros for the excise tax, the five-year-old around 3 thousand, the eight-year-old 2,312 euros, the 12-year-old 1,080 euros and the 15-year-old 405 euros. Based on the above, the Ministry of Transport considers that the goal of eliminating distortions is not achieved with scalable taxation.
