FINANCE Minister Michalis Sarris yesterday defended a government bill cutting tax rates on new and second-hand cares, calling it a “just and important social measure”.
Submitted earlier this week by the Cabinet, the proposed law aims to open up the market on the island and bring it into line with the rest of the EU.
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 had initiated talks with car dealers on how to review the tax regime.
So far, anyone who imported a second hand car to Cyprus from a foreign country was compelled to pay the same registration tax as they did on a brand new vehicle, which could even mean that the registration tax alone is greater than the car’s value.
The recently proposed amendment provides that for new cars up to 1650cc, the rate of taxation comes down to 30 cents per cc, translating into savings of between £290 and £908. Between 1650 and to 2250cc, the rate is £2 per cc (down from between £2.70 and £2.85).
The rate goes up to £3.50 for an engine between 2.25 and three litres, down from the previous brackets of £5.50 and £8. Cars over three litres will now be taxed at £4.50 per cc, a 44 per cent decrease.
And the all-popular pick-up trucks will be subject to a taxation rate of 15 cents per cc irrespective of engine capacity, down from 50c.
The policy on used cars is also changing. Currently, cars over six years old are taxed at 25 per cent over the regular rate but that is set to change. Under the new bill, used cars will face tax rates which decrease with the passing of every year, up to an 85 per cent discount for a nine-year-old car.
“This will encourage Cypriots to change their cars more often,” Sarris said.
“Therefore, despite a loss of approximately £38 million in tax revenue for the state, in the long run we expect the boost to the market to more than make up for it.”
According to the bill, car registration fees and road tax depend on carbon dioxide emissions; it operates on the assumption that higher-capacity engines produce more of the pollutant.
“We believe the changes are across-the-board and do not favour one manufacturer over the other,” added Sarris.
Asked to comment on certain reservations expressed by political parties, he offered:
“This is not a zero-sum game: it’s about dialogue. We are of course willing to discuss changes, but on the whole I feel the bill is fine, and I’m confident Parliament will pass it as is.”
Voting on the bill has been postponed for the next session of the House plenum, next Thursday. The government had sought to fast track the legislation but socialists EDEK and opposition DISY say it needs fine-tuning.
DISY deputy Lefteris Christoforou has suggested, for example, that a £175 ceiling on road tax be extended to petrol-fuelled cars; the proposal only covers diesel-powered vehicles.
And EDEK’s Marinos Sizopoulos wants to allow large families the right to purchase one vehicle tax-free, as well as a further tax rate reduction for higher-capacity cars. Moreover, cars that are already in bonded warehouses on the island should be subject to the new changes.
The government did not want to botch things again, after a scheme it introduced in late 2003 went bad: it made regular passenger vehicles and their road tax cheaper while proving very costly for specific groups.
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 had caused a sharp drop in sales – up to 200 per cent – so this time the government was careful not to make the same blunder. However, it knew full well that it could not deal separately with import tax for second-hand cars – it also had to address the situation for new vehicles.
That’s where it got tricky, because under its austerity programme the government would find it tough to agree to an across-the-board reduction. Finance Minister Sarris is working with a tight budget.
