The Taxation and Customs Union Commissioner, Laszlo Kovacs has proposed that car registration and general road taxes should be rolled into one tax, partly based on how much pollution the vehicle causes.
A spokesman was not available last night, but it is expected that the Government will resist any change to vehicle registration tax (VRT) which yielded €900 million for the Exchequer last year. Ireland has opposed previous draft proposals.
The current proposal to end the multiplicity of car tax rules in the EU will need the unanimous support of all 25 member states, though the European Parliament will not have an involvement.
The linkage between taxation and carbon dioxide emissions will make the latest commission proposal harder to oppose than previous efforts, because the EU must cut car emissions if it is to meet Kyoto Co2 targets.
Last year, the Revenue Commissioners raised €879m in VRT, up €114m on 2003. Exchequer returns for the half year published this week show that VRT revenues are well ahead of last year, reflecting a 13 per cent increase in car sales. Under Mr Kovac's plan, EU car tax rates would not be harmonised, but the registration tax would be abolished over a period of between five and 10 years. Each 1 per cent fall in VRT would cut €40 million from tax revenues.
However, Mr Kovac argues that tax revenues would not be affected if the gradual abolition was accompanied by a parallel increase in the annual road tax and, if necessary, other taxes.
A gradual transition from road tax and VRT to one based partly on pollution emissions would allow members states such as Denmark, which can levy €16,000 onto the price of a normal family saloon, time to adapt, he said.
By the end of 2008, at least a quarter of the combined tax base should be based on carbon dioxide emissions, rising to half by 2010, the commission said.
Such a change would make environmentally-friendly cars, such as the Toyota Prius, cheaper, but impact severely on middle-market cars such as the Ford Mondeo, which can often be as polluting as larger, more expensive models.
Mr Kovacs's proposal echoes that of his predecessor, Frits Bolkestein, who three years ago wanted to end car taxes that penalised buyers in some member states.
The proposal has already sparked a sharp reaction from Denmark, which collects 19 billion crowns ($3.44 billion) in registration tax per year, and may prompt a veto. "It is not an EU matter to interfere in whether we have a registration tax or not or how high it should be," Danish tax minister Kristian Jessen said in June.
Mr Kovacs declined to comment directly on Denmark but said the commission was acting in the EU's overall interests. "It's important what the Danish and what the other governments will say, but it's also important how the Danish public will react, and I am pretty sure the Danish public will be overwhelmingly supportive," Mr Kovacs said.
The European Parliament will only have the opportunity to give its opinion as it has no co-decision powers in taxation matters, but Mr Kovacs was confident the assembly would be supportive.
Sixteen of the EU's 25 member states levy a registration tax, while nine countries have no registration tax and will not be required to introduce one. - (Additional reporting by Reuters)
