Blog: Dave LeggettIntra-EU vehicle taxation

Dave Leggett | 9 May 2003

I was reminded today of what a shambles the EU's policy of 'fiscal harmonisation' has become. As far as I can judge, progress on bringing national duties and tax rates into line has virtually ground to a halt. For the auto industry, the picture across Europe is very fragmented - taxes on vehicle acquisition vary, so do company car 'benefit in kind' treatments, Value Added Tax (VAT) rates and rules and of course, that old favourite for tax raising, duty on fuel (it accounts for half the price of fuel in the UK for example). And the regulations applying to many of the taxes will vary too, in terms of say, where the engine size thresholds are. The vehicle makers are forced to incur additional costs because they are unable to treat Europe as a truly single market (remember the '1992' fuss?). In Denmark for example, taxation rates on purchase as high as 180% mean that pre-tax car prices are dirt cheap so that the final car price is not too astronomical. Manufacturers must sell at a loss there in the hope that they will be well-placed one day to clean up. Allowing people to buy their cars in one market ex-tax and pay taxes in the final destination country doesn't seem to be forcing any change, presumably because the numbers are insufficient to bother the national tax authorities. Some single market.

And some markets are - in terms of regulations and taxation - better for diesel than others. France has a broadly pro-diesel set-up and has the highest diesel penetration rate in Europe. That's no accident. In Britain, the company car (it could account for as much as 50% of the new car market) benefit-in-kind rules are crucial. When they became less favourable to diesel a few years ago, diesel share of the UK new car market collapsed. Now a new scheme based on CO2 emissions has caused it to surge again. But don't expect it to get to French levels. Alas, the same applies to alcohol duties.

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