Dáil Éireann Debate, Tuesday - 26 July 2022
357. Deputy Niamh Smyth asked the Minister for Finance if he is planning to review the vehicles registration tax on bringing newer vehicles into the State (details supplied) as part of budget 2023; and if he will make a statement on the matter. [40288/22]
View answerIn general, all vehicles in the State must be registered here and Vehicle Registration Tax (VRT) is payable once only, at the time that a vehicle is registered. Typically, new vehicles are registered when they are sold to customers whereas imported used vehicles are registered within 30 days of entering the State.
In May this year, Revenue published a detailed analysis of the trends over recent years in VRT receipts and vehicle registrations. (The report is available on the Revenue website). Total VRT receipts in 2021 were €785.7 million which was 16.6% below their pre-pandemic level. The annual number of vehicle registrations also shows a fall in that period, most notably in relation to used vehicles. As Revenue’s analysis identifies, the changes in the level of vehicle registrations and VRT receipts are associated with several significant factors that have affected the vehicle market in the last few years, including the impact of the Covid-19 pandemic, Brexit, changes in the structure and rates for VRT, the trend towards lower-emitting vehicles, and fuel price changes.
VRT for cars is now structured to disincentivise the acquisition of higher polluting passenger vehicles and incentivise lower polluting options. The tax has two components: a charge linked to carbon dioxide (CO2) emissions (the largest portion of the tax calculation), and a charge in respect of nitrous oxide (NOx) emissions. The rate for CO2 portion of the tax ranges from 7% of the car’s value for the lowest emitters (including fully electric cars) to 41% for the highest emitters. As the uptake of lower emitting vehicles progressively increases, therefore, it can be expected that the yield from this tax will continue to decrease.
Since the UK left the EU Single Market and Customs Union, from 1 January 2021, the movement of goods from Great Britain into the EU is an importation from a third country and, in accordance with the terms of the Withdrawal Agreement, such goods must be declared to Customs, and are liable to customs duty (if applicable) and VAT at import. However, the EU-UK Trade and Cooperation Agreement (TCA) eliminated tariff duties for trade between the EU and Great Britain where the relevant rules of origin are met. This means that if vehicles are imported which are of UK origin, then a 0% duty applies, whereas duty of 10% applies to vehicles which are not of UK origin. In certain instances Returned Goods Relief may apply: where the vehicles were originally exported from the EU, have not been altered and are re-imported within three years of export from the EU. In very specific circumstances, relief from Value-Added Tax (VAT) may also apply where the goods are re-imported into the EU by the same economic entity that originally exported the goods out of the EU.
Under the terms of the Protocol on Ireland/Northern Ireland, the movement of goods between Northern Ireland and the EU effectively is regarded as a movement within the EU. However, a particular issue now exists in relation to certain used cars – known as “margin scheme cars” – following a significant change that the UK unilaterally made on 14 January 2021 which impacted considerably on the application of the Withdrawal Agreement and the Protocol. The UK has introduced significant changes to the VAT regime for used cars imported from Great Britain into Northern Ireland and extended the scope of the Margin Scheme to them. Under the Margin Scheme, a car dealer simply accounts for VAT on his or her gross profit margin on the sale of a used car, i.e. on the difference in the trade-in and resale prices. The UK had signalled that it would approach the European Commission to seek changes to the rules that apply under the Withdrawal Agreement/Protocol but they moved unilaterally on 14 January 2021 and published new rules that apply retrospectively from 31 December 2020. The UK asked the Commission for a permanent derogation from the VAT Directive to allow them to operate the scheme but the Commission refused on the basis that the margin scheme cannot be applied on sales in Northern Ireland of second-hand cars imported from any third country including Great Britain.
As a result, and after considering the scale of the threat posed by the abusive routing of cars imported into the State from Great Britain through Northern Ireland and the resulting non-payment of VAT at import, Revenue changed its guidance and indicated that cars imported from Great Britain into Northern Ireland after 31 December 2020 could only be subsequently imported into the State and reregistered here after they were declared to customs and customs duty, if applicable, and VAT at import were paid. This ensures that they are liable for VAT and Duty on the same basis as used cars brought into the State from Britain. The guidance also indicated that used cars imported into Northern Ireland from Great Britain prior to 1 January 2021 would not be subject to the need to complete a customs declaration and would not be liable to customs duty or VAT at import. The additional paperwork requirements have been kept to a minimum with a simplified Supplementary Import Declaration (SID) being required which allows the VAT on import to be paid.
The current approach addresses the risk of substantial tax avoidance that has been posed since the UK’s 14 January 2021 announcement, should parties who are importing used vehicles from Britain into the State decide to route the transaction via Northern Ireland. The aim is to bring equal tax treatment to used car imports from Great Britain into the State, whether they be imported through a direct or an indirect route. The approach is intended to be temporary in nature, pending a resolution to the issue between the UK and the European Commission.
These new trading arrangements have come about as a result of the United Kingdom’s decision to leave the European Union and the UK’s unilateral decision during January 2021 to extend the margin scheme to cars imported into Northern Ireland, despite the provisions of the Withdrawal Agreement and the TCA.
