Tony Killeen (Clare, Fianna Fail)

Gabhaim buíochas leis an Seanadóir as ucht an deis a thabhairt dom freagra a thabhairt ar an ábhar tábhachtach seo.

I take this Adjournment matter on behalf of my colleague, the Minister for Finance, Deputy Brian Lenihan. I welcome the opportunity to clarify some matters relating to the application of VRT in this State.

Section 132 of the Finance Act 1992 permits the Revenue Commissioners to charge VRT on the registration of vehicles in the State and provides that: "with effect on and from the 1st day of January, 1993, a duty of excise, to be called vehicle registration tax, shall be charged, levied and paid...". VRT is chargeable on registration of a motor vehicle in the State. All motor vehicles in the State, other than those brought in temporarily by visitors, must be registered with the Revenue Commissioners. A vehicle must be registered before it can be licensed for road tax purposes.

I must stress that, despite what some people claim, VRT is not in conflict with the EU treaties or the Single Market. In this regard VRT is a national tax and it does not contravene EU law. This principle has been underpinned by European Count of Justice judgments. Ireland is one of 16 member states that have some form of vehicle registration taxes. Some other member states have registration taxes that are higher than in Ireland, particularly Denmark.

VRT is charged on the open market selling price, the OMSP, of a vehicle in the State. The OMSP is defined in section 133 of the Finance Act 1992, and is the price, inclusive of all taxes and duties, which a vehicle may reasonably be expected to fetch on a first arm's length sale in the open market in the State by retail. The OMSP of new vehicles in the State is declared to the Revenue Commissioners by a wholesale distributor, while the OMSP of imported second hand vehicles is determined by the Revenue Commissioners, based on factors such as age, mileage and vehicle condition. With regard to the registration of both new and imported second hand used vehicles, VRT is charged at the appropriate rate on the full open market selling price.

The VRT system was rebalanced with effect from 1 July 2008. The tax in respect of passenger cars is now based on the CO2 emissions of the car whereas previously it was related to engine size. In summary, under the current VRT system, the VRT rate applicable to new and used imported cars registered on or after 1 July 2008 is determined by the CO2 emissions rating of the car. A seven band CO2 emissions system, A to G, applies. It is underpinned by a new CO2 emissions labelling system for cars on the lines of the energy efficiency labels for white goods introduced by the Department of the Environment, Heritage and Local Government. Seven VRT rates, ranging from 14% to 36%, depending on the car's CO2 emission levels, are applied to the OMSP of the car.

The VRT system is also being used to encourage the purchase of series production electric, hybrid and flexible fuel vehicles. Full electric vehicles are exempt from VRT and certain hybrid vehicles, including plug-in electric vehicles and flexible fuel vehicles are provided with up to €2,500 relief on the VRT payable. The purpose of these reliefs is to encourage the development of these new technologies and thereby contribute to reducing the CO2 emissions arising from the transport sector to below what it would otherwise be. The rebalancing of the VRT system combined with the rebalancing of the motor tax system has been successful in encouraging people to purchase low emission cars. For example, in 2009 some 58% of new cars purchased were in the lower two CO2 emission bands and some 77% were in the lower three CO2 emission bands. Assisted in part by the scrappage scheme during the first four months of 2010, some 76% of new cars purchased were in the lower two CO2 emission bands while 88% were in the lower three CO2 emission bands. This compares to 2006 when only around 15% of new cars purchased would have been in the lower two CO2 emissions bands and under 40% would have been in the lower three CO2 emission band categories. Furthermore, it should be noted that arising from the lower price of new cars under the July 2008 rebalancing of the VRT system, the average VRT paid on new cars reduced by well over 30% between the first half of 2008 and 2010.

In regard to out of State cars, including Northern Ireland cars used in this State, VRT is applied on the registration of new vehicles and imported second-hand used vehicles in the State. As a general rule, all vehicles imported permanently into the State must register for VRT purposes within seven days of arrival. This rule applies equally to vehicles imported by EU and non-EU persons. Section 135(a) of the Finance Act 1992 permits a European or other foreign registered vehicle, which is temporarily brought into the State by a person established outside the State, to be exempted from the requirement to register for VRT purposes for a period normally not exceeding 12 months from the date on which the vehicle concerned was brought into the State. These provisions are in line with Article 39 of the EU treaty which provides for the free movement of people within the EU. It is worth noting that a reciprocal arrangement is also in place for Irish State residents in fellow member states.

Section 64 of the Finance Act 2007 also provides for temporary exemption from the registration requirement for certain vehicles registered in another member state but used in this State by State residents on behalf of businesses established outside the State provided that the vehicle is used principally for business use outside the State, in this case, normally in Northern Ireland. In regard to the stoppage or detention of cars, I am informed by the Revenue Commissioners that a motor vehicle is detained or seized by authorised officers of the Revenue Commissioners where there is evidence it is being retained permanently in the State, is liable to registration and payment of VRT and its owner has failed to declare the vehicle and pay the VRT due within the period prescribed by law. A notice of detention or seizure is normally issued by the officer concerned. In a routine case, the seizing officer normally offers terms for local release of a seized vehicle. However, where aggravating circumstances such as commerciality, fraud or obstruction exist, the decision regarding release or otherwise is made by the VRT prosecuting unit, Bridgend, County Donegal to whom the officer will report the seizure. Unless the offender is offered an export option, the normal release terms are payment of the VRT together with a fine or penalty which is calculated by reference to the category of the vehicle, the amount of VRT and the length of time the vehicle has been in the State. A vehicle is normally released once the VRT and penalty have been paid. However, where an individual is not in a position to pay the fine and VRT amounts together immediately, the vehicle can be released on payment of the fine alone on condition of the individual signing off an undertaking to pay the VRT within seven days.

While there is no legal obligation to do so, where a vehicle has been seized, it is normal practice for the seizing officer to ensure the owner can make arrangements to get to his or her home or place of work. Depending on the circumstances, this may mean driving the person to his or her home or to the nearest bus stop or train station if he or she is unable to make alternative arrangements to be picked up. This is normal practice except where a vehicle has been seized in circumstances of a hostile or aggravated nature. The decision on whether or not to offer release of the vehicle for removal from the State on payment of an appropriate fine is made by the seizing officer. The factors taken into account in arriving at a decision include the amount of VRT due, whether circumstances such as fraud or obstruction exist, the indications or otherwise of a commercial connotation and the extent to which the vehicle has been used in the State, which may indicate it was intended to be retained permanently in the State.

I am aware the EU Commission does not much like vehicle registration taxes and that the Commission and others, including the Commission on Taxation, have at various times called for the abolition of VRT. However, it must be recognised that in Ireland VRT is an important source of revenue for the Exchequer. For example, it yielded €1.3 billion in 2006, €1.4 billion in 2007 and €1.1 billion in 2008. The receipts for 2009, at €375 million, reflect the contraction in economic activity. One could not just abolish VRT without raising the equivalent amount of money from other sources. Introducing widespread road pricing has at times been mentioned but this is realistically still some way off. Abolishing VRT and collecting from another source the same amount of revenue that would have been raised in a normal year, for example 2008, would require an excise increase, inclusive of VAT, of 25 to 30 cent per litre on petrol and auto-diesel. There is no evidence that such measures would be any more agreeable to the public than is VRT and indeed each bring their own, if different, set of problems and difficulties. Consequently, there are no plans to abolish VRT.