AFTER a fortnight of political horse-trading, bickering, accusations and public protest, the legislature on Thursday finally approved the government’s eagerly awaited bill for reducing the taxation on cars. The government eventually secured the consensus of support for the bill, among the four main Parties, that it had sought. But it came at a high price.
The bill that became a law on Thursday was nothing like the bill the government had originally drafted and presented just 10 days earlier. The new law is a monument to logical inconsistency – a mix of half-baked provisions littered with loopholes and exemptions, aimed at keeping interest groups happy. This is what happens when laws are drafted by committee, the members of which represent different interests. One party was championing the interests of the second-hand car importers, another was defending certain agents, while deputies from different parties were, supposedly, supporting the rights of low-income groups. The result was a law that will almost certainly end up being challenged in the Supreme Court.
The original draft of the bill had a logical consistency, but this disappeared once the parties got hold of it and started proposing changes that would, allegedly, benefit the consumer. For instance, it did not differentiate between new cars and imported second-hand cars – the tax that would have been imposed was determined by the engine capacity of each model and not by the price, arbitrarily stated by second-hand importers. The bigger the engine output, the higher the tax imposed. Taxes on cars above 2000cc were still exorbitant by any standards, but at least there was a logic to the way the system was structured.
The government gave incentives for the purchase of cars with low engine output as these were more economical to run – it is a way of reducing the island’s long-term fuel consumption which is a large drain on the economy. And it would be collecting higher taxes from people who could afford the more powerful cars. Finally, all the silly additional taxes on air-bags, ABS, electric windows, air-conditioning and power steering, which were considered taxable ‘luxury extras’ under the old regime but which now come as standard equipment on most cars, were scrapped.
But the government committed a major mistake when it decided to delay the tabling of the bill in the legislature by a week in order to enter consultations with the parties and secure a consensus. This sparked a predictable populism contest among the parties and individual deputies over who would make the most ‘people-friendly’ changes to the bill. All the parties came under pressure from the second-hand car importers, who mounted a forceful campaign aimed at safeguarding the privileges they enjoyed under the old tax system, which secured them a 70 per cent share of the car market and guaranteed them super-profits. Their businesses would go under, they claimed, if the bill was passed as it was, and parties duly came to their rescue.
Changes were made and tax discounts were included in the bill for imported used cars, which was a blatant case of preferential treatment. Where was the justification for giving a 15 per cent tax discount for cars that were less than a year old? Surely these almost new cars would still be competitively priced even if there were no tax discounts, because they are bought at lower prices than new cars. So what was the purpose of the discounts other than to give an unfair advantage – guaranteeing high profit margins — to a small group of businessmen? Importers of new cars have already threatened to take legal action against the state, and who could blame them if they do?
But the most ludicrous changes made to the proposed law were those relating to the ubiquitous pick-up trucks, also known as diplokambina. In a fit of populism, deputies decided that these were cars bought by the poorer members of our society and should therefore be taxed at the lowest rate – 50 cents per cc. This made a mockery of the principle that tax should depend on the engine output, as pick-up trucks with engines of 2500 or 2800 cc would be paying the lowest tax rate. In the case of saloon cars of such engine power, the tax is so high that it more than doubles the CIF price. Is this not blatant discrimination? It is unheard of for a government to use its car tax scheme for social policy purposes – supposedly helping the poor buy a powerful car cheaply!
Pick-up trucks not only use a lot of fuel, they also have diesel engines which are more harmful to the environment. So what happened to the objective of encouraging the purchase of cars with smaller, more environment-friendly engines? It is not even as if pick-ups are used exclusively on the farm or for carrying equipment. Thousands of people use the diplokambino as a saloon family car, and there are as many being driven in towns as are seen in the countryside. And this will continue to be the case, even though the government’s objective is, quite clearly, to reduce the number of four-wheel drive cars on the roads by slapping prohibitive taxes on so-called ‘all-terrain’ vehicles. For a 4,000cc all terrain car the tax has increased almost by £10,000 to a staggering £38,751. But the all-terrain four-wheel drive diplokambino is taxed at the minimum rate.
Ideally, there should be no tax on cars other than the 15 per cent VAT. Why should Cyprus residents in many cases have to pay double the price other EU citizens pay for a car, in what is supposed to be a single market? This is grossly unfair. And to add insult to injury, the government, with assistance of the political parties, has approved a car taxation system that is resoundingly unfair, discriminatory, inconsistent and short-sighted.
