Plans for an overhaul of car taxation are to be announced by the European Commission this week, including the abolition of car registration taxes.

The proposals will also include incentives to make cars more environmentally friendly, with taxes more closely linked to carbon dioxide emissions.

EU tax commissioner Laszlo Kovacs wants to simplify car taxes to remove distortions in the single market and to avoid the risk of double taxation for motorists who move between countries.

He will propose abolishing car registration taxes in all countries within 10 years, ending a levy that he says can be as high as €16,000 in Denmark but does not exist in some member states.

Mr Kovacs will propose that the registration tax be absorbed into the annual car tax levied in each country.

That would remove the situation where someone who pays to register a vehicle in one country can be asked to pay a second registration fee if they move abroad.

Mr Kovacs also wants the annual car tax increasingly to reflect environmental priorities so that, by 2010, 50 per cent of the tax should be based on a vehicle's carbon dioxide emissions. - (Financial Times Service)