Vehicle Registration Tax.

I wish to raise the issue of the way vehicle registration tax is being applied by the Irish State and the fairness of that tax. We are well aware of the European Commission's dislike of this tax and that it has issued a directive that member states would phase out its application and move towards a road usage tax in the future. I appreciate the Irish State's sovereignty on this matter but we all accept the application of VRT works against the spirit of the European Union and the free movement of goods.

In my constituency in Donegal the application of VRT by this State can only be seen as the major political party in government, Fianna Fáil, profiting from partition. I represent a constituency that borders Fermanagh and Tyrone and the people in that community, particularly those living beside the Border, know the same type of car can be brought 36% cheaper across the Border which, effectively, is the cost of VRT on some classes of car. This State increases the price of a vehicle by 36% simply because it is bought on this side of the Border.

The figures for the number of vehicles on which VRT was paid in 2009 illustrate the importance for people in Donegal of this tax in that they look across the Border when they want to buy a car. Donegal has the second highest number of vehicles on which VRT was paid in 2009. Some 8,757 cars were registered in Donegal in 2009 and VRT was paid in respect of them — the highest number were registered in Dublin, which had some 300 more vehicles. Therefore, a total of nearly €15 million accrued from VRT from that county alone in 2009.

I call on the Minister for Finance to bring forward proposals that are practical, sensible and that recognise that the European Union is trying to phase out VRT in all member states, to introduce a proposal that would phase out VRT over a period of time and, if need be, replace it with a more common-sense approach in this respect.

I checked the Green Party's website and I note that under its policy on the economy section it has a statement on VRT to the effect that the Green Party will abolish motor tax or VRT on a phased basis. The Commission on Taxation report, commissioned by the Government in 2009, recommended its abolition over a phased period of ten years. When the Commission on Taxation made its recommendation it was working on figures that were outdated because it did not have the information we have today, which is that the total tax take from VRT in 2009 had dropped significantly by 66% down to €375 million. The projections by the Government and the Department of Finance for this year's tax take from VRT is that it will decrease again down to €365 million.

I hope the Minister of State will not put forward the argument that if VRT was to be abolished, excise duty on a litre of petrol and diesel would have to be increased by 25 cent to 30 cent because that is inaccurate. If he were to do so, he would be misleading this House because that would be based on figures for VRT at the height of the boom. I hope the Government has woken up to the fact that those days are over. The tax yield from VRT last year was €375 million, not €1.2 billion or €1.4 billion which it was in 2006 to 2008. Those days are over for many reasons that I do not have time to go into. One of the reasons is that the changes to the application of VRT in the past two years has meant it can no longer be passed on to apply to second hand cars.

The reality is that if VRT were abolished we would not have to come up with €365 million accruing from that tax. If VRT was abolished over a phased period, there would be an increase in new car sales. I note from figures I checked that the sale price of a 1.6 litre family car in the Twenty-Six Counties is €26,000 from which the Department of Finance takes €10,000. The car only costs €16,000 and of that €10,000 tax take €5,600 accounts for VRT. It is no wonder that people go across the Border to purchase their cars.

I am not asking for VRT to be abolished over night. If that was to happen, it would cause chaos because it would devalue cars that are in the system and it would create a shock in the second hand car market. We need a proposal to phase out the application of VRT. For example, if we needed to recoup all the tax foregone from increasing the excise tax on fuel, which I would not recommend, it would amount to a 1 cent increase over the next ten years. Perhaps there is a case for not phasing out VRT completely and that a small standard charge should apply, but it is wrong that there is a difference of 36% between the price of a car bought in Lifford and the price of a similar car bought in Strabane.

I often listen to Conor Faughnan's announcements on the radio although I have not met him. He said:

VRT was always a con trick, a tax avoidance by the Government that stole back from the Irish people the benefits we voted for when we passed the Single European Act. Everyone has hated VRT since its inception. We hate it for the same reason we hate pickpockets.

Now is the time to bring forward proposals to abolish VRT, as the European Commission and the Commission on Taxation have requested us to do, and while the tax take from VRT is at rock bottom and is due to decrease this year. We need to strike at time and come up with a fairer system for those who want to purchase new or second hand cars in this State.

Gabhaim buíochas leis an Seanadóir as ucht an deis a thabhairt dom freagra a thabhairt ar an ábhar tábhachtach seo.

I take this Adjournment matter on behalf of my colleague, the Minister for Finance, Deputy Brian Lenihan. I welcome the opportunity to clarify some matters relating to the application of VRT in this State.

Section 132 of the Finance Act 1992 permits the Revenue Commissioners to charge VRT on the registration of vehicles in the State and provides that: "with effect on and from the 1st day of January, 1993, a duty of excise, to be called vehicle registration tax, shall be charged, levied and paid...". VRT is chargeable on registration of a motor vehicle in the State. All motor vehicles in the State, other than those brought in temporarily by visitors, must be registered with the Revenue Commissioners. A vehicle must be registered before it can be licensed for road tax purposes.

I must stress that, despite what some people claim, VRT is not in conflict with the EU treaties or the Single Market. In this regard VRT is a national tax and it does not contravene EU law. This principle has been underpinned by European Count of Justice judgments. Ireland is one of 16 member states that have some form of vehicle registration taxes. Some other member states have registration taxes that are higher than in Ireland, particularly Denmark.

VRT is charged on the open market selling price, the OMSP, of a vehicle in the State. The OMSP is defined in section 133 of the Finance Act 1992, and is the price, inclusive of all taxes and duties, which a vehicle may reasonably be expected to fetch on a first arm's length sale in the open market in the State by retail. The OMSP of new vehicles in the State is declared to the Revenue Commissioners by a wholesale distributor, while the OMSP of imported second hand vehicles is determined by the Revenue Commissioners, based on factors such as age, mileage and vehicle condition. With regard to the registration of both new and imported second hand used vehicles, VRT is charged at the appropriate rate on the full open market selling price.

The VRT system was rebalanced with effect from 1 July 2008. The tax in respect of passenger cars is now based on the CO2 emissions of the car whereas previously it was related to engine size. In summary, under the current VRT system, the VRT rate applicable to new and used imported cars registered on or after 1 July 2008 is determined by the CO2 emissions rating of the car. A seven band CO2 emissions system, A to G, applies. It is underpinned by a new CO2 emissions labelling system for cars on the lines of the energy efficiency labels for white goods introduced by the Department of the Environment, Heritage and Local Government. Seven VRT rates, ranging from 14% to 36%, depending on the car’s CO2 emission levels, are applied to the OMSP of the car.

The VRT system is also being used to encourage the purchase of series production electric, hybrid and flexible fuel vehicles. Full electric vehicles are exempt from VRT and certain hybrid vehicles, including plug-in electric vehicles and flexible fuel vehicles are provided with up to €2,500 relief on the VRT payable. The purpose of these reliefs is to encourage the development of these new technologies and thereby contribute to reducing the CO2 emissions arising from the transport sector to below what it would otherwise be. The rebalancing of the VRT system combined with the rebalancing of the motor tax system has been successful in encouraging people to purchase low emission cars. For example, in 2009 some 58% of new cars purchased were in the lower two CO2 emission bands and some 77% were in the lower three CO2 emission bands. Assisted in part by the scrappage scheme during the first four months of 2010, some 76% of new cars purchased were in the lower two CO2 emission bands while 88% were in the lower three CO2 emission bands. This compares to 2006 when only around 15% of new cars purchased would have been in the lower two CO2 emissions bands and under 40% would have been in the lower three CO2 emission band categories. Furthermore, it should be noted that arising from the lower price of new cars under the July 2008 rebalancing of the VRT system, the average VRT paid on new cars reduced by well over 30% between the first half of 2008 and 2010.

In regard to out of State cars, including Northern Ireland cars used in this State, VRT is applied on the registration of new vehicles and imported second-hand used vehicles in the State. As a general rule, all vehicles imported permanently into the State must register for VRT purposes within seven days of arrival. This rule applies equally to vehicles imported by EU and non-EU persons. Section 135(a) of the Finance Act 1992 permits a European or other foreign registered vehicle, which is temporarily brought into the State by a person established outside the State, to be exempted from the requirement to register for VRT purposes for a period normally not exceeding 12 months from the date on which the vehicle concerned was brought into the State. These provisions are in line with Article 39 of the EU treaty which provides for the free movement of people within the EU. It is worth noting that a reciprocal arrangement is also in place for Irish State residents in fellow member states.

Section 64 of the Finance Act 2007 also provides for temporary exemption from the registration requirement for certain vehicles registered in another member state but used in this State by State residents on behalf of businesses established outside the State provided that the vehicle is used principally for business use outside the State, in this case, normally in Northern Ireland. In regard to the stoppage or detention of cars, I am informed by the Revenue Commissioners that a motor vehicle is detained or seized by authorised officers of the Revenue Commissioners where there is evidence it is being retained permanently in the State, is liable to registration and payment of VRT and its owner has failed to declare the vehicle and pay the VRT due within the period prescribed by law. A notice of detention or seizure is normally issued by the officer concerned. In a routine case, the seizing officer normally offers terms for local release of a seized vehicle. However, where aggravating circumstances such as commerciality, fraud or obstruction exist, the decision regarding release or otherwise is made by the VRT prosecuting unit, Bridgend, County Donegal to whom the officer will report the seizure. Unless the offender is offered an export option, the normal release terms are payment of the VRT together with a fine or penalty which is calculated by reference to the category of the vehicle, the amount of VRT and the length of time the vehicle has been in the State. A vehicle is normally released once the VRT and penalty have been paid. However, where an individual is not in a position to pay the fine and VRT amounts together immediately, the vehicle can be released on payment of the fine alone on condition of the individual signing off an undertaking to pay the VRT within seven days.

While there is no legal obligation to do so, where a vehicle has been seized, it is normal practice for the seizing officer to ensure the owner can make arrangements to get to his or her home or place of work. Depending on the circumstances, this may mean driving the person to his or her home or to the nearest bus stop or train station if he or she is unable to make alternative arrangements to be picked up. This is normal practice except where a vehicle has been seized in circumstances of a hostile or aggravated nature. The decision on whether or not to offer release of the vehicle for removal from the State on payment of an appropriate fine is made by the seizing officer. The factors taken into account in arriving at a decision include the amount of VRT due, whether circumstances such as fraud or obstruction exist, the indications or otherwise of a commercial connotation and the extent to which the vehicle has been used in the State, which may indicate it was intended to be retained permanently in the State.

I am aware the EU Commission does not much like vehicle registration taxes and that the Commission and others, including the Commission on Taxation, have at various times called for the abolition of VRT. However, it must be recognised that in Ireland VRT is an important source of revenue for the Exchequer. For example, it yielded €1.3 billion in 2006, €1.4 billion in 2007 and €1.1 billion in 2008. The receipts for 2009, at €375 million, reflect the contraction in economic activity. One could not just abolish VRT without raising the equivalent amount of money from other sources. Introducing widespread road pricing has at times been mentioned but this is realistically still some way off. Abolishing VRT and collecting from another source the same amount of revenue that would have been raised in a normal year, for example 2008, would require an excise increase, inclusive of VAT, of 25 to 30 cent per litre on petrol and auto-diesel. There is no evidence that such measures would be any more agreeable to the public than is VRT and indeed each bring their own, if different, set of problems and difficulties. Consequently, there are no plans to abolish VRT.

I am thankful to the Minister for his reply although disappointed. A grassroots campaign has been established in Donegal in the past couple of weeks in response to an operation by customs officials in areas such as Inishowen. Complaints have been made in regard to the manner in which people were stopped and questioned, which is perhaps a separate issue.

I ask the Minister to acknowledge that the figures he has provided to the House do not, in terms of an increase in excise duty on fuel, petrol and auto-diesel, reflect the current tax take for this year. The Minister stated a 25 to 30 cent per litre increase on petrol and diesel would be required to replicate the loss of revenue from VRT. I want the Minister to acknowledge that this would be the loss of revenue in the years of economic boom when Deputy Bertie Ahern was Taoiseach and leader of Fianna Fáil. Replacement of the loss of revenue this year or last year would be only one third of that amount. I can supply the Minister with figures in this regard as provided by the Commission on Taxation. It states, for example, that a 1 cent increase on petrol and diesel over the next ten years would for each year accrue €187.7 million in respect of petrol and €193.5 million in respect of diesel, amounting to €381.2 million, which is in excess of the €375 million in VRT taken in last year and the estimated €365 million for this year.

My understanding is that the response as put on the record by me is correct.

The Seanad adjourned at 7.40 p.m. until 10.30 a.m. on Thursday, 13 May 2010.