European Commission proposes CO₂-based car taxation

8 July 2005

The European Commission has proposed legislation that would require Member States to re-structure their passenger car taxation systems by eliminating car registration taxes and transforming the circulation (road) tax into a new unified single levy, that would be tied up in part to the vehicle’s CO₂ emissions. The proposal aims only to establish an EU structure for passenger car taxes—it would not harmonize tax rates among Member States.

Car registration taxes should be abolished over a transitional period of five to ten years, according to the proposal. The gradual abolition of registration taxes would be accompanied by a parallel increase of annual circulation taxes, to maintain the Member States’ revenues. The registration tax—currently charged in 16 out of the 25 Member States, at rates ranging from a couple of hundreds of euro to as much as €16,000 in Denmark—gives rise to double taxation for European citizens who move to another EU nation and are required to register their vehicle again.

The proposal introduces a CO₂ element into the tax base of both annual circulation taxes and registration taxes. Tax would be differentiated on the basis of CO₂ emitted per kilometer by a car. At least 25% of the total tax revenue (road/circulation and registration taxes) should derive from the CO₂ element by the end of 2008, and 50% by 2010.

The proposed Directive follows a consultation paper issued by the Commission in September 2002.

Source: European Commission (press release | FAQ | COM(2005)261 final)

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