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Budget 2021 – The impact on the automotive sector

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The main contention is around the introduction of a new tax category for new cars

The main contention is around the introduction of a new tax category for new cars

Wednesday, October 14, 2020

There has been a mixed reaction to the changes announced in Budget 2021, which will impact on motorists. Some vehicle manufacturers welcoming the moves made, while the SIMI has expressed concern about a possible €1,000 average increase in the price of a new car.

As expected, the tax on petrol and diesel fuel has been increased and it is estimated that this will add around 2.5c per litre to prices at the pumps. However, it is changes to vehicle tax and VRT that have attracted the most attention.  

Currently around half a million cars in Ireland were first registered before 2008. Their road tax is based on engine size and there were no changes announced to this category.

A further 1.6 million vehicles registered after 2008 have road tax based on CO2 emissions. Most of these will also be unaffected, although the vehicles with the highest emission in this category will pay more. For example, a vehicle with a CO2 emissions rating of higher than 141g/km will see a motor tax increase from €390 per year to €400. For context, a Prius is rated at 96g/km, a diesel Golf at 137g/km and a Range Rover Evoque Diesel at 194g/km.

The main contention is around the introduction of a new tax category for new cars, which coincides with the adoption of a new Worldwide Harmonised Light Vehicles Test Procedure (WLTP) emissions rating system. This has been structured to encourage a move away from petrol and diesel models to hybrid and electric. Thus a new vehicle with a 0g/km rating (all electric) would be taxed €120 per annum, while a high emissions vehicle with an emissions rating of between 201 and 225g/km would be charged ten times more, with annual road tax of €1,200.

In line with road tax changes, a similar approach will be adopted to VRT (Vehicle Registration Tax) on new cars, with the creation of nine new rate bands. Under this approach, low emission vehicles, such as plug-in hybrids, hybrids and electric cars will attract 7% VRT. Meanwhile cars with a rating above 191g/km would attract 37% VRT.

Used vehicle imports will also be subject to the new VRT rates, based on WLTP emission values, regardless of year of first registration in their country of origin. This will increase their cost significantly.

Grants for hybrid and electric vehicles will run out at the end of the year, but the government believes the VRT reduction will compensate for this.
 
SIMI Director General, Brian Cooke is critical of the changes. He commented, “In the context of the current economic climate, COVID, BREXIT and an already depressed new car market, the Industry is disappointed with the increase in VRT announced in Budget 2021. Overall, the changes to the VRT system result in an average €1,000 increase on the price of a new family car. This will make the new car market even more challenging for next year, reducing demand and slowing down the replacement of the oldest cars.”

The concern appears to be that popular petrol and diesel models will cost more both to buy and to tax under the new rules. However, electric and hybrid vehicles will be a more attractive proposition.

As such, the chief executive of Toyota Ireland, Steve Tormey, believes the new VRT system will have a positive impact on the car market for 2021. He commented, “I welcome the introduction of the new tax bands for passenger cars proposed in today’s budget. They clearly indicate the future policy direction for government, whereby motorists will now be increasingly rewarded for purchasing lower emitting vehicles, such as hybrid and electric, while paying more if opting for higher emission vehicles, such as diesel. We see the new VRT system as a positive impact on the car market for 2021, by giving consumers clarity about government intentions for car purchases.”

Overall the impact of this budget on the independent aftermarket should be largely positive, with only the highest emission older vehicles facing increased tax charges and no mention of any scrappage incentives. With many newer vehicles costing more, we may expect the average age of vehicles on the road to increase, which is generally positive for aftermarket businesses. However, the budget does further push new car buyers towards hybrid and electric vehicles, meaning independent garages will need to be more prepared to repair and service these cars.

 

Low emission vehicles will attract 7% VRT, meanwhile cars with a rating above 191g/km would attract 37% VRT

Low emission vehicles will attract 7% VRT, meanwhile cars with a rating above 191g/km would attract 37% VRT