Call to cap tax relief on electric vehicles at €40,000

Tax relief on electric vehicles should be extended beyond the end of this year but the relief should apply only to cars priced less than €40,000, according to proposals from the Tax Strategy Group (TSG).

The Vehicle Registration Tax (VRT) relief of up to €5,000 on electric vehicles is due to expire at the end of 2021. However, the Government advisory group has called for these to be extended beyond this deadline while the current threshold of €40,000 should be reduced to €30,000 from next year.

Currently, the €5,000 VRT relief on electric vehicles begins to taper off from €40,000, ending at €50,000. Under the new proposals, it would mean that a new electric car priced at €30,000 would receive the full €5,000 relief, but new or imported cars priced at €40,000 or more would not benefit from the tax relief.

Tax

The group’s paper on climate action and tax, also discusses wider changes to the VRT system, with increases of between 2 and 5 per cent in rates for vehicles with emissions over 101g/km, leading to a top rate of 42 per cent on cars emitting 191gCO2/km and above.

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The group’s paper also notes that carbon tax increases applying from October 13th, 2021, will add 2.5 cent to a litre of diesel and 2.1 cent to a litre of petrol.

In line with this, the group is calling for a gradual removal of the excise gap between petrol and diesel, which currently stands at 11.6 cent per litre. “While the lower excise on diesel was originally conceived as a support to businesses reliant on diesel as fuel, it also contributed to an uptake of private diesel vehicles,” according to the TSG.

The paper also states that “the gradual phasing out of fossil fuel subsidies like the diesel rebate scheme – introduced to support the haulage and passenger transport sectors – is necessary in the transition to a more sustainable future”.

Among its other recommendations, the paper suggests there may be scope for adding emissions-based criteria to VRT rates for commercial vehicles “that provides an environmental rationale and ties the system to the policy of polluter pays”.

Employees

Addressing benefit-in-kind (BIK) charges for employees, the paper says that consideration might be given to amendments to the new BIK rates due to commence in 2023.

It suggests weighting the rates more heavily towards discounting and surcharging based on a car’s emissions profile in order to encourage the take-up of electric vehicles.

On the zero BIK rate on electric vehicles, while the Department of Transport supports an extension of this rate for three more years, the group proposes that any extension could be coupled with a down-scaling of the threshold. It suggests, for example, dropping it to €40,000 for the first year, €30,000 for the second year and €20,000 for the third year, before it expires at the end of 2025.

The Tax Strategy Group is chaired by the Department of Finance with membership comprising senior officials and political advisers from a number of civil service departments and offices.