THE GOVERNMENT is toying with the idea of gradually phasing out duties for imported cars – or at least streamlining the complex tax system.
Under the threat of massive fines from the EU for discriminating against used car importers by charging unjustifiably high registration taxes that ignore the depreciation of the vehicle’s value, the Finance Ministry has initiated talks with car dealers on how to review the tax regime.
At present, anyone who imports a second hand car to Cyprus from a foreign country must pay the same registration tax as they do on a brand new vehicle, which could even mean that the registration tax alone is greater than the car’s value.
For example, if you bought a new car in Cyprus four years ago for £20,000 (£15,000 retail price and £5,000 registration tax) and the car depreciates to a present value of £10,000, then the registration tax to import a comparable car to Cyprus should be £2,500 (half of the £5,000 registration tax for the new car). In other words, the amount of registration tax should be proportional to the second-hand market value of the car.
Cyprus Customs law states that if you import a car that is up to one year old then you get a 15 per cent discount; if the car is between one and three years old, you get a 20 per cent discount; if from three to five years old you get a zero per cent discount; and if over five years old you get a 25 per cent penalty.
According to the local law, goods in free circulation in the EU can move from one member state to another without payment of further import duty. Certain goods are said, however, to be subject to ‘excise duty’, even if they arrive from another member state of the EU. Used motor vehicles are one such good.
Duty is based on engine capacity, and is dependent on which of the given bands of engine capacity the vehicle falls within. This figure is then raised or decreased according to carbon dioxide emissions.
Worse for the consumer, a tax scheme introduced in late 2003 made regular passenger vehicles and their road tax cheaper while proving very costly for specific groups.
For instance, the owner of a four-litre SUV was forced to pay between £450 and £500, even if the vehicle was 18-years-old.
Low-income groups who did not benefit from the low car prices still had to pay a lot on road tax if their vehicle’s engine was two litres and above.
Inevitably this caused a sharp drop in sales – up to 200 per cent – so now the government is careful not to make the same blunder twice. However, it knows full well that it cannot deal separately with import tax for second-hand cars – it also has to address the situation for new vehicles.
That’s where it gets tricky, because under its austerity program there is no way the government would agree to an across-the-board reduction.
For their part, car dealers are said to favour the gradual abolition of all import duties. Most of them feel that, by conforming to EU law on registration tax, the used car market in Cyprus would become more competitive, benefiting both the car dealers, who face protectionist domestic used car competition as well as the buyers who must shoulder the burden.
According to reports, a bill has been prepared that would do away with the 25 per cent penalty for cars over five years old and also provide for up to 25 per cent discount for certain types of cars.
The move is in part aimed at avoiding penalties from Brussels, but is also a step toward adopting the EU’s long-term plan of eradicating all import duties for vehicles inside the bloc and transferring this onto road tax or fuel consumption tax.
The draft legislation is to be discussed at the House Commerce Committee next month.
??
??
??
??
