Drivers of new petrol and diesel SUVs could be hit with new “weight-based” vehicle registration and motor taxes in the next budget.
The government’s tax advisors suggested the introduction of weight-based taxation among options to plug the hole in the exchequer from the switch to electric cars. The electrification of the fleet is costing €1.5 billion per year in lost motor tax, VAT, and petrol and diesel excise receipts.
The Department of Finance published reports yesterday from the government’s Tax Strategy Group, comprising senior officials and political advisers from across the Civil Service.
This year’s report on Climate Action and Tax examined the introduction of “weight-based” taxation, whereby heavier cars get a heavier tax.
The advisors noted that the weight of a vehicle “generally correlates with vehicle emissions” and suggested that the introduction of a weight-based tax would incentivise the purchase of vehicles with lower emissions.
It also explored similar schemes in other EU member states such as France, which has introduced the scheme as an additional charge, on top of motor tax, with a cap of €50,000 and an exemption for EVs.
France introduced weight-based taxes for every petrol or diesel car that went over the permitted 1,800 kilogram allowance – at €10 for every additional kilogram.
The TSG said the Irish vehicle registration tax (VRT) and motor tax system “could theoretically adapt a similar surcharge for cars falling beyond a certain weight or size threshold”.
The TSG noted that while uptake of EVs has been “slow in the past”, with EVs only making up approximately 2.7% of the national fleet, uptake is “currently moving more rapidly”.
Statistics from the Society of the Irish Motor Industry indicate that over 50% of new petrol and diesel cars, bought last year, were SUVs.
Other suggestions from the TSG to balance the deficit included the introduction of congestion charges. The TSG noted that a project from the Department of Transport, Project BRUCE (Better Road User Charging Evaluation), is currently considering this.
The TSG added that as the uptake of electric vehicles continues to increase, the government will have to consider the “financial sustainability” of tax breaks of up to €5,000 for EVs.
Over half of people who bought a new EV were able to benefit from tax relief last year. Full tax relief is only available on cars costing less than €40,000 however, the average price of a new EV is €51,377. Partial relief is available on cars costing between €40,000 and €50,000.
Revenue from band one of VRT, which covers EVs and the best performing hybrids, has seen “significant growth” since the last budget, while revenue from VRT bands for vehicles with much higher emissions has fallen.
The TSG suggested a 1% increase for those on the higher bands of VRT (bands 11-20) would allow the exchequer to regain revenue from the vehicles that have “above average” emissions, such as SUVs.
This increase, while raising an estimated €26 million, would be in line with the “polluter pays” priniciple, the TSG said.
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