Is VRT a legal tax?

The legality of VRT
Posted by Shane Teskey on 28 June 2010 in New Cars

Vehicle Registration Tax or ‘VRT’ as it’s known has been a bone of contention for Irish motorists since it was introduced in 1993.

Originally designed as a replacement for Irish excise duty charges that were no longer possible under the EU single market, VRT is now part and parcel of every car purchase in the Republic of Ireland.

VRT has a direct effect on the ‘List Price’ of a new vehicle as well as any car (New or Used) being imported from abroad. It’s effects don’t stop there – as the recent calamity in the used car market demonstrates, VRT has a substantial influence on the residual value of a used car (some 1.9 million of them currently on Irish roads).

Recent Controversy

A recent crackdown by Customs and Revenue officers in the northern counties where a stand-off developed between Customs officials and a Donegal Woman prompted one Irish man to set up a group on Facebook aptly named “Ban VRT Now“. At the time of writing the group has 11,247 members as well as local political support.

Facebook Group

Facebook Group calling for a ban on VRT

The man behind the movement, Ryan Stewart is campaigning hard to have VRT abolished in favour of a user-based system of taxation. Speaking to Motorcheck.ie, Ryan said that “Our government needs to accept that VRT is never again going to reach the 1.4 billion that it did in 2007. If they accept the detailed proposals that we have presented them with we could stabilise the tax base across all cars to a fairer ‘usage based’ policy as opposed to new car sales which we can see today are highly volatile“.

Ryan’s battle is being fought on three fronts. Politically, Ryan is campaigning at at local level to have VRT abolished and has delivered 29 out of 29 Donegal County Councillors supporting a motion to get rid of VRT. Assisting the campaign at EU level is MEP Marian Harkin who has taken his proposals to Brian Lenihan for consideration. Practically, Ryan has taken his case to Dublin castle and met with Revenue officials in an effort to ensure that that due process will be afforded to everyone suspected of evading the tax.

In a recent update to his facebook discussion Ryan writes ”We have seen some extremely heavy handed tactics applied, particularly in Donegal…in regard to officials overstepping the mark more often than not and not applying their own rules properly, or consistently. They are criminalising ordinary people, who are trying to make the best of a bad situation in the midst of a recession. They have discretion at their disposal and have leaned toward turning the screw on people, rather than using this discretion to allow people the opportunity to comply, or appeal genuine failures of this procedure.“

The Legality of VRT

While Ryan argues that VRT is an illegal tax, a report prepared by Denis Murphy for the Commission on Taxation states, ‘The EU has commented that although VRT is legal it is totally contrary to the spirit of the single market and has recommended that it be phased out over a 5 to 10 year period‘.

Whilst it may be ‘unpopular’ this doesn’t mean that it’s illegal. A Revenue spokesperson pointed out to Motorcheck.ie that Ireland is only one of sixteen european members that impose VRT. i.e. Denmark, Spain, Greece, Italy, Ireland, Netherlands, Austria, Portugal, Finland, Hungary, Latvia, Malta, Slovenia, Cyprus and Poland.

European Commission

European Commission Website

The official legal position in Europe can be found on the Commission’s website here where it states “At present there is little Community legislation, or harmonisation of national fiscal provisions, applied by the Member States in the area of passenger car taxation. Therefore, it is for each Member State to lay down national provisions for the taxation of these cars. The few pieces of legislation currently in force mainly cover the cross-border aspects of car taxation”.

As VRT is applied to the 50,000+ used cars purchased in the North of Ireland and the UK annually, many arguments against the tax focus on the cross border aspects but Revenue point out that in Ireland as elsewhere there is NO tax on crossing of a border. The tax is on the registration of the vehicle.

So is it legal? Yes. Is it liked? No.

European Commission Proposal

In 2005, the European Commission made a proposal to for the abolition of car registration taxes over a transitional period of five to ten years.

At the launch of the proposal the Commission said “The Member States’ revenues would not be affected if the gradual abolition of registration taxes is accompanied by a parallel increase of annual circulation taxes and, if necessary, other taxes. A gradual change would protect car owners from dramatic devaluations of their cars. The transitional period would also allow those Member States applying high registration taxes to make the necessary structural changes to their car tax systems.”

Other proposals included a tax refund for cars that were exported and the introduction of a CO2 element into the tax base of both annual circulation taxes and registration taxes.

The recommendation was made in July 2005. 5 years on and we see that Ireland has introduced a CO2 element into the tax base but what of the abolition of VRT? Is this being ignored?

Support for the abolition of VRT

In section 9 of its final report, the commission for taxation supported the Commission’s proposal by recommending the abolition of VRT over a longer period.

Commission on Taxation Report 2009

The VRT system should be replaced by a system based on car usage, in the longer term. Such a system should be introduced over a 10-year period in order to minimise adverse impacts (in relation, for example, to the existing fleet of tax-paid vehicles.

Notice the support for a focussed scrappage scheme that has since been implemented.

What would it mean for our motor industry?

Any changes which could result in the fall of a used cars’ residual value would be strongly resisted by the motor industry. Many practitioners still blame the introduction of CO2 based taxation for its collapse in recent years and would be slow to support the introduction of significant changes without careful consideration.

However, there are those that believe the abolition of VRT would mean greater sales of newer, environmentally cleaner cars thus benefitting the industry. Ryan Stewart believes that the Government could reform the tax base and offer support to motor dealers experiencing a fall in residual values without losing revenue in the medium term.

It’s difficult to predict how and when VRT will be abolished (or replaced?) but with growing resentment it’s likely that it will continue to be a hotly debated topic for quite a while.

Other Posts we've Written on This Topic

  1. Motorcheck.ie Introduces New VRT Calculator

    Are you planning on importing a used car from Northern Ireland or mainland GB? If...

  2. Strong Start for New Car Registrations?

    The latest statistics from the Motorcheck Car Index show that new car registrations in Ireland...

  3. The Future of Electric Motoring in Ireland…

    When I heard that the ESB had appointed a Managing Director to a newly formed...

  4. The Real Risks of Buying A Stolen Car

    There are over 11,000 cars stolen in Ireland every year. The vast majority of which...

14 comments so far

Reply
Bob Flavin
June 28, 2010 at 5:13 pm #

VRT should be abolished, it wouldn’t take long for the 2nd hand market to filter through at the lower prices. But it will never happen, the Government is far too greedy, It will just be a name change e.g. VRT to Carbon Tax.
We pay too much for driving in this country, an inadequate public transport system and bumbling politicians mean we all pay through the nose for our freedom.

Reply
Shane Teskey
June 28, 2010 at 5:27 pm #

Hi Bob,

Thanks for the comment. I’ve heard that before – ‘VRT’ as we know it will be abolished but reintroduced under another name.

What about the leasing industry? They bet on the price of a used car three (sometimes four) years hence? Wouldn’t it be floored?
What would you think of 4 / 5 cent on the fuel prices?

PS. The team here at Motorcheck enjoy your blog at http://smokerspack.com/. A great read for motor enthusiasts!

Reply
Bob Flavin
June 28, 2010 at 6:48 pm #

Here’s the solution, it just needs teasing out:

Get rid of Motor tax, VRT and Carbon tax on fuel. Replace all 3 with a 10c per litre fuel hike that pays your road tax, carbon tax and VRT in one.
Instead of many baffling stealth taxes, there would be one clear one. The offset would be, the more you drive the more tax you pay.
The hit, or change in retail prices of second hand car would only happen once, plus you could save money by not needing a tax disc or anyone to chase people for having no car tax.
On the leasing companies/Car hire firms, they could apply for a part refund of VRT on their current line up, that would soften the blow for them.

PS Cheers for the mention!

Reply
Ryan Stewart
June 28, 2010 at 11:20 pm #

Hi Shane,

Thanks for getting in touch – just want to make a point on this though – at present, VRT is a national tax, and we understand that it is ‘legal ‘ on that basis. In correspondance we have received from the EC, they have informed us that they are launching an official investigation into how VRT is applied in Ireland, citing ’serious concerns’ about the legality of the application of VRT, pertaining to the calculations of OMSPs, fines and enforcement, double taxation, etc. They state, which we agree with, that ‘it is under the competency of member states to charge any additional taxes which they deem fit, although it is also under these competencies that member states ensure that these taxes are compatible with EU law.’

The way we see it is that thay are not compatible with EU law. That seizure of a vehicle is disproportionate as the value of the tax liability is much lower than the value of the car, that it is the enforcement of VRT which is illegal, and how Revenue calculate the OMSP on imports, and the elements of double taxation, as VAT is charged on an OMSP with VRT already charged, and that during enforcement there is no due process, without facing a minimum of €2500 for obstruction for challenging a decision of a Customs officer who is not qualified to assess the value of a vehicle. The facts are that if the government did this correctly, there would be no question of legalities, just the fact that it a very unpopular tax, which still does not make it right.

Reply
Shane Teskey
June 29, 2010 at 3:33 pm #

Hi Ryan, Thanks for your comment.

You raise an interesting question about the calculation of the OMSP. Is there anything in particular that you feel could be improved with the current process?

Do you feel that the OMSP calculations used today are truly representative of the ’selling price’ or is it specifically the issue of double taxation that concerns you?

Reply
Ryan Stewart
June 30, 2010 at 12:48 am #

Hi Shane,

I think that there are concerns relating to the OMSP revenue have compared to the price on the forecourts. We are in a recession after all and no-one can argue that car prices have dropped considerably, however the calculations on the VRT calculator are overpriced. Also bear in mind that safety aspects, alloys, even a CD player – any higher spec attracts more VRT. Bu this is not the main problem.

The methods of calculating the VRT are a major bone of contention. The figure is calculated as a percentage of the Open Market Selling Price (OMSP) of a vehicle. When importing a car however, this percentage rate is applied to the price of the car where VRT has already been paid, please see the following basic illustration:

A car is purchased in another member state for €7000. The vehicle’s OMSP in Ireland is €10000. VRT in this case is 24%. The means in which the VRT payable is €10000 x 24% = €2400. The OMSP price however, includes VRT already paid on the Irish car.

If this was correctly calculated, the OMSP in Ireland would have the 24% removed, before VRT was imposed. Therefore, the car which cost €7000 in another member state, would have an actual OMSP in Ireland of €8064. The actual amount, when calculated properly, would be €8064 x 24% = €1935 – so if this was the case, the person has been overcharged by €465.

When calculating the amount, it is the €10000 that is taxed, so VRT is applied to VRT, increasing the net VRT cost further. Surely if VRT is to be charged, this should be deducted from the OMSP, prior to calculation. There are tens of thousands of imports every year, so you understand the financial benefit to the government of overcharging in this way.

The EC have confirmed they are investigating this, and if they get their way it could possibly lead to refunds of overcharging dating back to 1993 – this would obviously be of no benefit to the country, and the public purse is already empty, so it adds further to pressure on the government, to deal with the problem now.

Just a quick response on the other points mentioned so far – it can’t all be added to fuel as this would put the haulage industry etc in jeopardy, and with an incrase of 10c a litre, would result in inflationary pressures, resulting in increased costs for basically everything. I looked at the number of stickers on the window too, including the possibility of insurance companies collecting tax along with insurance, but there are too many variables to make it work effectively.

Ref John’s comment, part of the answer to the used/leasing market is a ‘bail out’ something which we all know is not something new to the government! The idea is that the ‘loss’ in VRT that was anticipated for the scrappage scheme, now be allocated to this market to do exactly that – cover the cost of losses on purchases etc up to the date in which VRT did eventually go. The new car market would not need a further scrappage scheme as the government have already accidentally proven our point, that with less or no VRT (the scrappage scheme is a waiver of VRT) this would automatically stimulate this side of the industry, as new car prices would drop across the board. The question has also been put out there that if VRT did go, would car dealers not then increase prices to profit from this? The answer is that if they did it would be quickly seen as profiteering, and easily exposed, but at the same time if they were then providing a higher spec model, then who could argue with that?

Reply
John
June 29, 2010 at 10:05 am #

As I work in the leasing industry I for one would be very concerned at any proposed changes that might affect the residual value of vehicles.
The change to CO2 based VRT in July 2008 resulted in a drop in residuals of up to 50% and whilst for the consumer it’s bad, for those of us who have fleets of cars underwritten it is catestrophic. Whilst most garages have by now cleared their stock that was affected by this drop in value, leasing companies are, on a daily basis taking losses on cars that were unwritten three and four years ago. This will continue until mid 2011 after which we will be dealing with cars with CO2 based VRT.

Should VRT be abolished completely, the losses we are experiencing will be exacerbated and the cars due back in the next few years will also be overvalued – a situation the industry cannot afford and will not be able to take.
If any discussion on this issue takes place then the interests of businesses who either own (garages) or have a residual interest in used cars must be taken into account and Bob’s suggestion of compensating industry (I would suggest refunding the VRT element equivelant to that applicable on importing a car at present) must be implemented or face the probablility that companies who have clung on for the past two years, will go out of business and cost 0,000’s of jobs.

Any discussions on this issue must include the Vehicle Leasing Association of Ireland and it’s members.

PS. Anyone know why do we need insurance, NCT and road tax discs on our cars? Surely technology is now there that ensures if you don’t have (a) valid insurance and (b) valid NCT(if applicable) then you can’t get a tax disc. If they were linked we could dispense with the need for two of the above bits of paper stuck to windscreens!

Reply
Shane Teskey
June 29, 2010 at 3:35 pm #

Thanks for your comment John. It’s interesting to hear how any changes to VRT will affect all the relevant stakeholders and I’m sure the leasing industry will be watching any developments in this area closely.

Reply
Michael
July 14, 2010 at 9:27 pm #

Fined 2,500 Euro in circuit court today. Driving english reg while my car in for repairs. This was an appeal as was not represented in district court 2 months ago and fined 5,000. Thinking of writing to customs to see if they will reduce this further. I don’t have the money for the fine. Any idea what discression do they have and who do i write to?

Reply
Ryan Stewart
August 18, 2010 at 12:31 am #

If it’s been handed down in circuit court – I’m not a solicitor – but I doubt that there is much that you can do, although it would be interesting to hear the full facts. You can get my contact details from the website. There are certain procedures that revenue and customs are supposed to follow. You can download their enforcement manual from the website.

Reply
Trish Gallagher
September 1, 2010 at 3:16 pm #

Here’s a thing I’ve often wondered!
I am a married women living and working here in Wexford.
My husband lives, works, pays tax and is originally from Co. Down. (He comes home every Friday morning and leaves for work every Monday morning.)
His car is taxed and insured in NI and my own car is taxed and insured in ROI.
Can I, as his spouse buy a car for myself in the North and what would be the position regarding VRT? (We had a great time explaining to the Customs and Excise as to why my husband’s northern registered car is down here most weekends but all was in order!)

Reply
Shane Teskey
September 3, 2010 at 4:23 pm #

Hi Trish,

It all has to do with the definition of normal residence. Revenue have covered this in a new set of FAQs put up on their website recently at http://www.revenue.ie/en/tax/vrt/faqs-vrt.html.

How do I know if I am a ‘normal resident’ in Ireland
Normal residence means the place where a person usually lives for at least 185 days in each year because of personal or occupational ties. However, if a person’s occupational ties are in a different country from his/her personal ties, then the country of personal ties is taken as the normal residence, provided the person returns there regularly.

A person who is normally resident in the State, but who lives outside the State primarily for the purpose of attending a school or university, is regarded as a State resident.

So you can still purchase a vehicle in NI but as you qualify as a resident in the Republic it looks like you must have it registered and pay VRT here.

Hope this helps!

Reply
Mark
November 3, 2010 at 2:57 pm #

After a long time thinking about it I think that it would be better if they just keep the V.R.T. At the end of the day the money will be got in other ways, higher car tax, more tax on fuel + more C02 tax on fuel, which will mean anyone who drives long distances from the country to Dublin every day will be screwed! I would rather buy a 2nd hand car and have cheaper fuel, which really is the greater cost of motoring. Eliminating VRT and raising fuel tax won’t make people buy new cars. Driving 30000+ miles a year means we pay around 3500 Euros in diesel. If fuel goes up much more then I think many people will be forced to quit their jobs! That’s why I am not in favour of more tax on fuel or pay as you drive etc. VRT no VRT, we will end up paying it anyway! They are already talking about more tolls. Where will it end? The Government is desperate to find money any way it can now, wait until the budget!

Reply
david w
August 4, 2011 at 1:24 pm #

it’s crazy I bought uk reg , car 1991 toyota with nearly 200,000 on the clock. was forced to pay 1.180 euro duty. my insurance company valued the car at 1000. Customs valued it at over 4000. I asked could i appeal and was told yes but that i would not likely be successful. never again.

Leave a comment