Car importers are appealing to the Government to announce its vehicle registration tax revision measures without further delay in order to stem what they describe as a "dramatic" fall in sales.

One major car importer claimed his sales were down by a whopping 95 per cent ever since the Government revealed it would be revising the car registration tax last November.

But Finance Minister Tonio Fenech yesterday underlined that there was no reason for anybody not to buy a car at the moment because they were likely to be exempted from fees that will come into force under the revised registration tax system.

The European Commission has sent a formal request to Malta to amend the unpopular tax regime, following a complaint raised by MEP Joseph Muscat.

The Commission is saying that the minimum thresholds imposed on second-hand vehicles imported from the EU - irrespective of their value - are discriminatory. It also objects to VAT being levied on the tax.

Vehicles are currently taxed between 50 and 75 per cent of their value, depending on engine capacity, and are subjected to 18 per cent VAT on the amount of registration tax payable, making cars sold in Malta among the most expensive in Europe.

The Government made it clear that it would be carrying out a reform of the system which should theoretically lead to cheaper cars on the local market. The plans have prompted many motorists to put purchases on hold.

One importer of a leading car brand said that hardly anybody was visiting his company's showroom, and those who did said they would wait for the revision of the tax before deciding whether to place the order. He said that sales had dropped to such an extent that the company's salesmen were being roped in to assist with mopping up the paperwork.

Another agent said sales had dropped by around 60 per cent to and several orders were cancelled right after the story first surfaced in The Sunday Times last November.

"The Government is moving in the right direction, but people need to put their minds at rest and it has to say that all those who buy a car in 2008 will be exempted."

Like others, the agent who preferred to remain unnamed, said that the Government should take into account the car industry's potential impact on employment, especially with its ripple effects on sectors like advertising. Austin Walker from the Car Importers Association said the uncertainty over car registration tax had extended the slowdown traditionally generated by budgets and elections.

"Yes, there is a major depression on the market and car importers are complaining. Let's hope there aren't further delays because we risk losing the 2008 market," Mr Walker said.

However, the waiting could be in vain and those postponing the purchase of a car in the hope of avoiding registration tax may do well to reconsider.

Finance Minister Tonio Fenech told The Sunday Times that an annual charge on the Co2 emissions of the car is to be introduced and a portion of the tax which is paid up front will remain.

"There is an element of congestion which we need to address. It is not in the national interest to double the number of cars purchased," the minister said, adding that the new system will be a replacement of the present tax regime, not an elimination.

The Government has informed Brussels about its planned reform of the car registration tax, which could be included in the next pre-budget document to be followed by a consultation process with the stakeholders. The Government is also looking at overseas models of the tax, tailoring it to the local situation and already has an "advanced framework" of the proposed changes, Mr Fenech explained.

The minister said he was conscious of the uncertainty and added that although the Government intends to implement the system within the shortest time-frame possible, "I don't have a magic wand".

There are a number of options to revise the tax and the Government is assessing the best option, said Mr Fenech, evidently aware of the implications on drivers' pockets, and the millions it generates for the Government.

Will the tax be backdated?

"The system will not be backdated but the Government is evaluating a number of options to manage the situation of cars acquired under the present regime recently, in the not so distant past, and also before the changes are made.

"We are considering a number of options to manage the transition between the old and the new system. The Government may introduce a system of credit whereby the 'extra' registration tax paid under the old regime would be given as credit on the annual emissions charge that would be levied on the new system."

He is even considering the possibility that for a specified period the two systems will be run in parallel - "whereby a car in the old regime would remain so for a number of years and new cars would be bought under the new regime with also possibly an opt-in or opt-out option for a period of time until the old system is completely phased out."

Should people stop buying cars for the time being?

"There shouldn't be a reason why people should stop buying cars. Although cars will be cheaper to buy with the new tax regime, those who buy a car today will not be penalised. There will be a system of credits or exemption from the new emissions-based charge so we ensure that those who bought a car a year ago or before the new system is introduced will not suffer the consequences."

He explained that those buying a car under the present system pay a sum upfront, with the subsequent costs of the licence fee, insurance and fuel.

With the new system the upfront tax will be cheaper but a new charge will be added annually to the present costs of maintaining a car, thus "shifting" the way the present tax element is paid.

"I appreciate that some people would want to wait hoping for some significant savings, (but) while it will be cheaper to buy a car, a new annual charge will be introduced, which those who have recently bought a car, or are about to buy, would be exempted from until the extra registration tax paid would be offset."

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