Environmentally-Friendly Cars

The Government Approves a Reform of the Registration Tax That Provides a Fiscal Incentive for Environmentally-Friendly Cars The Automobile Industry Evaluates the Reform of the Registration Tax Announced by the Government in Different Ways

Representatives of the industry have welcomed and evaluated the tax reform announced by the Government in different ways. By means of this reform, the Registration Tax will be linked to environmental criteria, providing a fiscal incentive for those vehicles that pollute the environment the least and proposing higher rates of taxation for vehicles with the highest CO2 emissions. In this respect, vehicles that emit less than 120 grams of carbon dioxide per kilometre will be exempt from paying the tax, whilst those vehicles with emissions over 200 grams will face a tax rate of 14.75%. The intermediate bands will be as follows: 4.75% for vehicles that present emissions of between 120 and 160 grams per kilometre and 9.75% for those vehicles whose emissions are between 160 and 200 grams.

The Spanish Association of Car and Truck Manufacturers (ANFAC) has welcomed the reform approved by the Government, which is expected to be introduced by the beginning of next year. ANFAC has stated that "more than 1.1 million cars will benefit from a tax reduction compared to the current rates". This, however, will not lead to a fall in tax revenue, given that, according to ANFAC, this reduction will be compensated by "the increase in the registration tax rates imposed on cars that pollute the environment the most, which means that the overall revenue from the registration tax will remain at a similar level to the current revenue figure". In this respect, in general terms ANFAC does not believe that this tax reform will entail a greater tax burden on consumers and adds that "it is also neutral from a technological point of view, given that it does not favour any type of technology over any other".

ANFAC also welcomes the social impact that the measure is likely to have, pointing out that the tax reductions "will mainly benefit the medium-range and medium-low range car categories, which are the biggest-selling categories in Spain and the categories manufactured on the Spanish market". Furthermore, it also believes that this tax reform will help to redirect demand within the market towards vehicles that pollute the environment less. For example, it trusts that the exemption from paying the registration tax on cars that emit less than 120 grams of CO2 "will serve as an incentive with regard to demand for these kinds of vehicle". To date, these vehicles have only managed to win a 7% share of the market.
 
In addition, the Association has declared that, in order to achieve a greater impact from an environmental point of view, it is necessary to maintain  measures aimed at renewing the vehicle stock, effectively removing older cars from circulation, "these being the vehicles that produce the highest levels of pollution". In this respect, manufacturers have called for an extension and improvement of the Vehicle Renewal Scheme (Plan Prever), which is scheduled to end on 1st January 2008, given that this "would complement the tax measures that have been approved in a much more effective manner from an environmental point of view". 

Faconauto Places the Priority on Removing Old Vehicles from Circulation

The Federation of Car Dealer Associations (Faconauto) received the announcement in a different manner. In its opinion, the Registration Tax reform approved by the Government "will not have a decisive impact in terms of reducing emissions because it lacks ambition". Furthermore, the Dealers' Federation believes that "it is a contradiction to provide fiscal incentives for less polluting vehicles at the same time as the Renewal Scheme (Plan Prever) is scheduled to be phased out as of 2008, in spite of the rejuvenating effect that this Scheme has had on the Spanish vehicle stock over the last five years, based on the removal of old vehicles from circulation, vehicles that are dangerous and present the highest pollution levels". In this respect, Faconauto proposes that priority be granted to the removal of old vehicles that pollute the environment the most instead of  "penalising the purchase of new and more efficient models".

Faconauto believes that this measure also "represents a form of discrimination within the automobile industry in favour of certain models and against others (for example, people-carriers)" and adds that changing the tax to ensure that vehicles that "theoretically" pollute the environment more pay more than environmentally-friendly models  "could cause distortions with regard to demand, precisely at a moment in which four-wheel-drive vehicles and high-range vehicles are leading the market".

Blas Vives, the Secretary General of Faconauto, has declared that "any modification of the tax imposed on vehicles should be tackled within the context of a global review of automobile taxation. In line with the proposals that have been made by the European Commission, VAT should be left as the sole tax imposed on the purchase of vehicles and taxation should then focus on the use that is made of vehicles, based on the application of special taxes on fuels, which means that drivers with the highest consumption levels are the ones that pay more". 

GANVAM Calls for a New Vehicle Renewal Scheme (Plan Prever)

For its part, the National Association of Motor Vehicle Sellers, Repairers and Spare-Parts Distributors (GANVAM) welcomed the fact that the reform announced by the Government does not entail an increase in the overall tax burden, but has also called for "a determined measure to be introduced by the Government in order to tackle the oldest and highest-polluting segment of the vehicle stock". In this respect, the Association has called for a new Vehicle Renewal Scheme (Plan Prever), one that also takes CO2 emissions into account.

GANVAM believes that the most logical approach would have been to combine the measures proposed with "others aimed at providing an incentive for the removal of the oldest vehicles in the stock, by means of a Vehicle Renewal Scheme (Plan Prever), which has been reduced and is in the process of being phased out entirely on 1st January 2008. This would enable these vehicles to be scrapped and replaced with other new vehicles or second-hand models, but in this case with vehicles that are less than five years old". Furthermore, the Association has stated that the fiscal premium should be based on the purchaser's income tax details (IRPF) and subject to the CO2 emissions of the vehicle that is being purchased, "whether it be new or a second-hand model less than five years old".

In relation to the management of the tax, GANVAM recalls that this form of taxation is now imposed by the Regional Governments, who "can raise the amount by certain percentages". GANVAM has expressed its fear that "the Government's decision could lead to further rises being imposed on the part of the Regional Governments".

Finally, the Association believes it is somewhat "inopportune for the Government to announce a measure five months before it is introduced, especially a measure that can distort a market (by accelerating the purchase of certain vehicles and having a negative impact on other vehicles) that is not exactly flourishing".