Importers of second hand cars, mostly from Japan, are feeling the pinch as more Maltese turn to UK imports as a result of cheaper registration tax and a favourable pound sterling exchange rate.
Competitive car prices in the UK, coupled with low cost flights, are encouraging some Maltese to purchase vehicles from the UK.
For example, a typical family hatchback manufactured in 2004 with 45,500 miles on the clock may be bought from the UK for £1,975 (€2,204). The buyer would then have to pay registration tax - this can be calculated on www.vehicleregistration.gov.mt - which would be €2,196, as well as transport costs.
Last January, the Malta Transport Authority registered 246 vehicles imported from other EU countries - twice as many cars as it did in January 2008. One reason for the increase was because a number of people who purchased vehicles last year waited to take advantage of the new registration tax system.
Throughout 2008, the ADT registered 1,723 used vehicles compared with 1,346 registered in 2007.
Some have been driving their cars to Malta, while others prefer to commission transporation. A spokesman for Attrans Ltd, a leading car transporter, said the company had experienced a surge in business. Although he could not quantify the increase, he said it was substantial. Transporting a car from the UK normally costs between €500 and €1,000.
A used-car dealer told The Sunday Times that he had seen a "sudden shift" to UK cars because they were generally cheaper.
However, not every car imported from the UK a good buy. For example, registration tax on a luxury four-door 2004 saloon is €20,777, around €600 euros more than the cost of the vehicle itself.
The car dealer also said that the quality of UK cars could not always be guaranteed. He added that that Japanese cars went through stringent investigations to verify their emissions standards and to vet their mileage. Over the past weeks, many furious motorists put pen to paper to complain about the ADT's service regarding the registration of used cars. Some of those buying second-hand vehicles from the UK are being forced to pay VAT twice, since they are being charged 18 per cent of the car's purchase price on which they would have already paid VAT.
The VAT charge is being applied to second-hand cars less than six months old or with less than 6,000 km on the clock since these are considered as 'new' vehicles under the law.
The issue of VAT on car registration gained momentum recently in a reply given by EU Taxation Commissioner Laszlo Kovaks to a parliamentary question by Labour MEP Louis Grech, who asked whether Maltese taxpayers were entitled to refunds on the VAT they paid on vehicle registration.
Mr Kovacs confirmed that Maltese taxpayers can seek redress over taxes collected in breach of EU law. However, he made it clear this was not automatic and had to be decided by national courts.
The Labour Party is insisting that the government reimburses car owners who had paid VAT "illegally".