Going green costs and a road usage tax is how you may end up paying
Don’t get me wrong I’m all for averting the course of climate change; I’m not good in extreme weather. Al Gore put it well We have a scales that balances two different things. On one side, we have gold bars. On the other side, the entire planet. That’s a false choice for two reasons: number one, if we don't have a planet...
The Tax Strategy Group (TSG) outlined their Budget 2019 musings in their recently published papers; I mentioned a couple of them in my last column. One paper dealt with environmental taxation discussing, among other things, the possible extension of the 0% Benefit in Kind (BIK) rate on company electric vehicles to 2021 and capping their BIK free value etc. You’ll recall the TSG is a government think tank (chaired by the Department of Finance) comprising senior members from a number of Civil Service offices.
One TSG suggestion that got much airtime was to tax road usage or as I call it “Tax On the Go” (TOG). The TSG’s reasoning was the structural shift to lower CO2 emitting vehicles in that any significant take up in Electric Vehicles would severely challenge the tax take from fuel excise duties, motor tax and VRT. It explained this as a longer term issue currently under consideration by the Department which requires a holistic approach, looking at all the current taxes on vehicles and on the potential for re-balancing policies to preserve the revenue base. They also suggested revisiting the VRT system and the equalisation of excise duty on petrol and diesel but let’s stay with TOG.
I get why it was suggested but how it would operate? For example, our income tax system is currently self-assessed. If you have income other than PAYE-able income then you have to complete an annual tax return and pay the resulting tax or you may be able to have your tax credits adjusted to take account of the other income’s tax.
Could you self-assess your road usage and then pay TOG? When would you pay TOG, annually, or would it be along the lines of the forthcoming PAYE modernisation and effectively pay, as it says on the tin, as you go?
All of this reminded me of the 1986 movie “Ferris Bueller’s Day off”. The heroes borrow one of their Dad’s cars, the 1961 Ferrari 250 GT California, as transport for their day of skipping school. Later they try to conceal their adventure from the respective father and attempt to “clock” the car by jacking up the back wheels and putting this rear wheel drive icon into reverse. Spoiler - it doesn’t go well.
This brought up a number of questions. What if your car is stolen? Would you be liable for TOG on the criminal distance travelled if you got your car back (or not)? If an allowance was made for the car when it went missing then how would you demonstrate the thief’s mileage and that done by you? Would you have to? Or would any possible allowance be a standard one such that the burden of proof of mileage would be removed once the car was reported AWOL?
Would TOG be levied in accordance with the distance travelled by the car or by the driver of that car such that multiple tax returns could be necessary? What if your little “Ferris” took a day off; would you be liable for his jaunt tax?
On a serious note what if you live in a rural area with limited public transport so you’d have to use your car to buy essentials etc.? Your lifestyle would then form the basis for tax payable. That’s not a million miles away from how it’s done now given the VAT rate on certain goods and services is higher than that on the essentials. However, TOG is different and could make the essentials more expensive as a result which would then offend the VAT policy. What about a company’s salesforce, would that mean increased costs in running the business? What about taxis? Similarly for commuters, the cost of getting to work would go up. The question then is by how much?
Back in 2016 Belgium brought in a kilometre charges for heavy goods vehicles with the amount of tax depending on the weight of the lorry, its emission class and the type of road taken. All foreign and domestic lorries driven in Belgium had to be equipped with a switched-on On Board Unit (OBU). It recorded the number of kilometres and transmitted the amount of the toll to an invoicing centre. Users then received an invoice with a statement of kilometres covered in the respective regions. I understand there are now fines for not having an OBU, tampering with it or if it’s just switched off. Is this the way we want to go, given that it doesn’t deal with the issues I mentioned earlier?
TOG has significant operational (let alone financial) difficulties but its purpose is to plug the hole left by any significant take up in the numbers of green cars. Right now according to the TSG there currently around 3,640 electric vehicles on Irish roads. If TOG was to be considered further then its financial and indeed social costs would need to be clinically reviewed. All stakeholders should have their say on such a fundamental shift in our law and possibly way of life. As I’ve always said consultation with us decreases consternation amongst us. This is one of those times.
Even if TOG goes off the agenda for now then who’s to say this new-fangled approach won’t be suggested again. For example, as part of the 2009 NAMA act, we brought about a “windfall tax” for certain land transctions but something similar had been suggested in 1973 by the Committee on the Price of Building Land (or the “Kenny Report”, as it became known). Therefore, a form of Windfall Tax was almost 40 years in the making. The CCCTB has been on the EU’s agenda for years and it’s still pushing it. No suggestion goes away in tax so, rather it hovers, sleepless, indefatigable waiting to be called for duty.
TOG would be a significant change in our tax law. As Mr Bueller said “life moves pretty fast, if you don’t stop and look around once in a while you could miss it”. Ironically, with TOG by stopping you save tax.
Tom Maguire is a tax partner with Deloitte and his fortnightly columns on tax matters appear in the Sunday Independent. The above article was first published on 26th August 2018.