LOWER tax rates on new and second-hand cars are expected to be approved by Parliament at the end of the month, opening up the car market on the island and bringing it into line with the rest of the continent.
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 new rates will make buying a car in Cyprus considerably cheaper.
According to yesterday’s Phileleftheros newspaper, the reductions are as follows: a car with an engine capacity up to 1650cc will be taxed at 40 cents per cc (down 10 cents), 1650cc-2500cc will have a tax rate of £2.50 per cc, while 2500cc and above will be taxed at £4.50 per cc, compared to £8 currently for vehicles over 2650cc. This means a car with a 2.7 litre engine will be subject to a £12,500 tax bill rather than the current £21,600.
The Finance Ministry said that although, in theory, revenue from taxes will be less, the expected boost to the market will cover any losses.
A spokesman at Customs headquarters was yesterday unwilling to confirm the accuracy of the figures cited by the paper, saying full details would be released after the bill goes before Parliament.
Cyprus is moving to change its law as the European Court of Justice last week ruled that Hungarian registration duty was contrary to community law in so far as it imposes a heavier burden on imported used vehicles than on similar used vehicles already registered in Hungary.
But Soteris Kolettas, Director of the Road Transport Department, explained that the ruling “would not have any effect on the Cyprus market, as we don’t impose heavier duties on second hand cars.”
Up to now, 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.
At the moment, however, 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 it is 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 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.
Used 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.
The new rates are in part aimed at avoiding penalties from Brussels, but are also a step towards 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.
