Motor tax bands likely to change for WLTP rules

It now looks very likely the Government will widen the current motor tax bands by between 10 and 20 per cent to account for higher emissions under the new fuel economy tests.

WLTP, or the World harmonised Light vehicle Test Procedure, is the new official fuel and emissions test, replacing the old - and thoroughly disgraced - New European Driving Cycle (NEDC) test.

Currently, car makers are scrambling to get their cars re-tested under the new legislation, which says that from September 1st, all cars must display their new Co2 emissions and fuel economy data.

They won’t be taxed on the WLTP figures, though, at least not yet. According to the legislations, 2020 is the proposed final cutoff year when all EU countries must change their tax systems to use WLTP data, and that presents a major worry for car makers and consumers alike.

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Why? Because the WLTP test is tougher, more stringent, than the old NEDC one and that means more realistic official fuel consumption figures (which is, on the whole, good for consumers) but higher CO2 figures too (which means higher tax).

Right now, we’re in an interregnum period, where WLTP is not yet in force as the basis for the tax system, but where the old NEDC figures are being recalculated, using the WLTP data, so official recorded emissions for most models are set to rise in the coming months. For many, it will be a rise of only one or two per cent so the effect will be negligible. For others, the rise in CO2 will be more profound, and potentially more damaging in a business sense.

Hard to administer

One motor industry insider, an expert in the WLTP system who asked us not to use their name, told The Irish Times that: “The idea is that you have an individual Co2 and MPG figure for each individual car, which is great from a consumer information point of view, and something that I think all of us stand behind as being a good idea. What makes it very hard is our tax structure. Frankly, it’s very hard to administer.”

The proposed widening of the motor tax bands, which would minimise the financial impact on both the consumer and the motor trade, is not yet officially being discussed by the Government, Revenue, or the various departments but it is being spoken of more or less openly within the motor trade now.

Uncertainty

As ever in Irish politics, though, nothing is certain until it's certain. According to our industry source: "The exemption that Ireland gets from Europe on the imposition of Vehicle Registration Tax (VRT) means that there's no onus on the Government to follow the EU's demand that the changeover to the new figures be tax-neutral. Car companies can't pass on any additional costs to the consumer - we've been told not to, but potentially the Department of Finance could increase its tax take in a falling car market by leaving the bands as they are. On the other hand, the higher taxes could be used as a bit of a stick to try and beat people into electric cars and plugin hybrids."

The uncertainty is causing unrest in the motor trade, as there will be no definite ruling on any changes to the tax system until the October budget at the earliest. In the meantime, there will be cars on sale in the July new registration period that are still on the old NEDC numbers, potentially giving them a price advantage against models that have already converted to the new figures. “There’s certainly nothing wrong with buying those cars” pronounced our anonymous expert. “If you can get a good deal on an NEDC car from stock, take it, because it almost certainly will be cheaper.”

Open mind

A spokesperson for the Department of Finance told The Irish Times that: "The Department is keeping an open mind on how best, from a fiscal perspective, to manage the decarbonisation of the transport sector as well as the overall economy. In this regard, it is and will continue to take on board the views of many stakeholders. It is a key priority for the Department that any proposals to address this issue are fair and sustainable."

There will be further confusion in 2020, when the full implementation of WLTP rules rolls around, because at that point, every single item of optional extra equipment can have an effect on a car’s Co2 rating, and can therefore have a double effect on its price - if speccing, say, a panoramic glass roof pushes a car’s Co2 rating up a band, then not only are you paying, for example, €1,500 for the roof, you’re also now paying a higher rate of VRT on the whole car, and that means that the roof now costs €1,550 because it too attracts a higher rate of VRT. So will we see a bonfire of options in 2020? A return to the bad old days of cars with one wing mirror?

Fewer optional extras

As ever in such matters, it depends… Martin Cardiff is Volkswagen Ireland's head of product and planning and he told The Irish Times that: "In terms of engines, diesel engines can take the higher equipment much easier than a petrol, so adding a sunroof has a lower impact on a diesel car's Co2 than a petrol car, so we might get basic petrols being sold vs. well-equipped diesels. In terms of build to orders that is but it's a guess because we don't know what government are going to do. Generally speaking the entry level trims have the lowest value and the higher you go up in lines and standard equipment the higher the equipment and therefore the Co2."

Even then, it’s not as simple as saying that a basic car will have lower Co2 figures than a more expensive model. According to our anonymous WLTP expert, it’s far, far more complicated than that. “Is it a case, for instance, that the bigger alloy wheel always comes with higher Co2? No, it’s not. I can show you a smaller wheel which is heavier and less aerodynamically efficient than a bigger one.

“On one model I can think of, the 17-inch wheels return a Co2 rating of 146g/km, but the bigger 18-inch ones have a Co2 rating of 144g/km. We even have a model on a set of 21-inch wheels which has the best Co2 rating of the entire lineup. Right now, we’re seeing that tow-bars, and the biggest alloy wheels have the biggest effects, from 2-3g/km up to as much as 7g/km of Co2. So I think when 2020 rolls around, you’re definitely going to see restricted model offerings, fewer available options, just to keep things simple for consumers and dealers if nothing else.

“You might also see a few dealers offering to fit some options in the dealership, once the car has been registered. Theoretically, those are supposed to be reported back so that they can adjust the car’s Co2 rating, but presumably not everyone will be so honest.”

There are not even any ready-reckoners which can give car buyers an easy at-a-glance system, even a rule of thumb, for which cars will be worst affected by the eventual switch to WLTP figures. For instance, one older petrol-powered model was barely affected by the change, while a much more modern, supposedly more efficient diesel car actually saw its Co2 figures jump by a whopping 30g/km.

Whatever the Government decides to do with the motor tax bands, and whatever final date is set for the implementation of full WLTP figures, this is going to be a very messy period for car buyers. A move that was supposed to bring about greater transparency and honesty in the motor trade, when it comes to fuel economy figures, is now looking like being the most confusing piece of vehicular legislation, ever.