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Carbon tax on motor vehicles announced

The Programme for Government has as an objective the introduction of a carbon tax within the lifetime of the Government. The first steps have now been taken in this regard.  In his 2007 Budget Statement the Minister for Finance announced a major restructuring of Vehicle Registration Tax (VRT), a day later the Minister for Environment, Heritage and Local Government  announced similar measures for motor tax.  Both measures, which are to come into place on July 1st  2008, move away from a system of taxation based on engine capacity, to one based on the level of CO2 emissions (grams of CO2 emitted per km). The new system will be seven bands (see table below) of taxation, VRT ranging from 14% to 36% of the price of the vehicle, and motor tax ranging from €100 -€2,000, depending on CO2 emissions.

   New VRT and  Motor Tax Rates from 1 July 2008   
 CO2 emission bands  g CO2/km  VRT rates Motor Tax  CO2 Band of new cars in 2006   Examples of some vehicles in this band 
 A  0-120g  14 %  € 100  1.6 % Peugeot 107;Honda Civic Hybrid; Toyota Prius
 B  121-140g  16 %  € 150  12.8 % Mitsubishi Colt 1.1; Toyota Yaris; Seat Ibiza 1.2
 C  141-155g  20 %  € 290  25.9 % Ford Fiesta 1.3; Nissan Micra 1.3; Volkswagen Polo 1.2
 D  156-170g  24 %  € 430  22.0 % Audi A6 2.0 TDi 140; Peugeot 607 2.0 HDi
 E  171-190g  28 %  € 600  23.1 % Renault Scenic II 1.4; Volkswagen Sharan 1.9 TDi;
 F  191-225g  32 %  € 1,000  9.9 % Volvo New S80 2.5 T S; BMW X5 3.0; Lexus LS600h 5.0
 G  > 225g  36 %  € 2,000  4.7 %  Audi A8 3.0; Land Rover Discovery V8; Nissan Pathfinder 2.5

Certain hybrid electric and flexible fuel cars will have further benefits under the scheme, with further top-up-relief up to €2,500 on the VRT payable on such cars. There will be a full exemption on VRT for electric cars and mopeds, to promote their use.

As a result of these new tax structures, drivers who opt for low emission vehicles are likely to see a reduction in their tax bill, and those who choose higher emision vehicles will be penalised.  Motorists will now be paying far more attention to the emissions data on new cars, all new cars will bear a label detailing the vehicle’s emissions.  It is hoped that the new taxation system will encourage people to take into account the carbon-emission levels when purchasing a new car, thereby helping Ireland to reach targets under the Kyoto Agreement.

In addition, the Minister for Finance is introducing a radical revision to the scheme of capital allowances and leasing expenses for cars used for business purposes. Changes will take effect for cars purchased or leased after 1st  July 2008. In this measure cars are again grouped into bands according to their carbon dioxide emissions. The new capital allowances to be applied for cars used for business purposes are as follows:

 New Capital Allowances  for Cars for business purposes from July 1 2008 
 Emission Levels Capital Allowance 
 g CO2/km € 
 < 156g  €24,000
 156 - 190g  max €12,000
 > 190g  €0

In relation to leasing expenses, those cars costing less than €24,000 with carbon emissions less than 156g /km will qualify for a tax deduction higher than the actual leasing expenses incurred.  For cars with carbon emissions below 156g/ km, costing more than €24,000, there is no change to the present setup. Cars with carbon dioxide emissions in the range 156-190g/ km have allowances reduced to 50% of those allowed under the current setup. Finally, cars with emissions greater than 190g/ km will no longer qualify for a leasing expense reduction at all.

N.B. "Cars registered before 2008 (i.e. cars in the current motor tax system before 2008) will continue to be taxed under the existing system related to engine size (cc)."

"From July 2008 there will be two separate tax systems for cars. Cars under the current motor tax system will continue to be taxed based on engine size (cc). New cars registered from 2008 will be taxed based on CO2 emissions level while new low CO2 emitting cars purchased in the first six months of 2008 will be switched to the CO2 system on first renewal of motor tax after July 1st 2008."

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