Low CO2 cars are likely to be tax-free under Germany's new CO2-based annual vehicle tax system.

A position paper published by the finance ministry defines the threshold for low CO2 cars as those emitting an average of less than 100g per kilometre, according to German press reports.

The German government has decided to change the current tax system from one based on engine size to one based on CO2 emissions. The new tax is planned for introduction from 1 January 2009.

Uncertainty over the details of the tax system is believed to be behind a downturn in the private car market in Germany. Consumers are unwilling to buy cars now for which they might be penalised financially in the future.

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