Budget Increase in Motor Tax Rates

As part of the overall €1.6bn required to be raised through taxes in 2012, motor tax rates are increasing.  The Minister for the Environment, Community and Local Government, Phil Hogan said today (6 December, 2011); “This is the first increase in motor tax rates for three years and most categories of vehicles will see an increase of  7.5%. We will continue to incentivise people to drive low emission cars that make less impact on our environment.” In the case of the three bottom CO2 bands, flat rate increases apply.  Band A (up to 120g CO2 per km) increases from €104 to €160, Band B (more than 120g to140g CO2 per km) goes from €156 to €225 and Band C (more than 140g to 155g CO2 per km) from €302 to €330. 

“The restructuring of motor tax in July 2008 to base it on CO2 emissions for all cars first registered from that date has brought a welcome shift to lower emitting cars”, Hogan said.  “It has also reduced the total amount being collected, and this trend will continue as a larger proportion of car owners pay motor tax based on CO2 emissions.”  He stressed that “in current financial circumstances, we must prevent the erosion of an important part of the tax base”.

Minister Hogan welcomed the review of VRT and motor tax that the Minister for Finance announced as part of the Budget package.  “A key part of this will be to ensure a continued environmental incentive to purchase cars with lower emissions levels.  Technology continues to improve, and cars with ever lower emissions are coming onto the market”, he said.  “We must maintain the incentive to purchase cars with the lowest possible emissions”.

For the vast majority of post-July 2008 cars taxed on the basis of CO2 emissions, the rates of tax remain below the tax that would be charged under the older system based on engine capacity, and the incentive to purchase cars with lower emissions is still in place, although marginally adjusted on a relative basis.  Overall there will still be a substantial difference between the average payment under the old system when compared to the emissions based system.

Motor tax receipts were €1,060m in 2008, reducing to €1,024m last year, with final receipts for 2011 expected to be in the order of €998m. 

The proposed increases are expected to generate in the order of €47 million over a full year.  Rather than going to the Local Government Fund, as would usually be the case, this revenue will go directly to the Exchequer as an immediate and necessary measure towards national fiscal adjustment.

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