Motor vehicle tax harmonization

Abstract

As is true for all significant revenue sources, motor vehicle taxes serve multiple objectives (Walters, 1968; Smith, 1975). Governments require funds for road transport related expenditures and for other purposes. Motor vehicle taxes help to meet revenue needs. These taxes as a share of total tax revenues in nine EC countries are given in Table 5.1 for 1972 and 1982. France, Italy, and Belgium each apply higher value-added tax (VAT) rates to automobiles than to other goods, and since it has not been possible to disaggregate these revenues from other VAT revenues, the share in these countries is understated. There remains substantial variation in the importance of motor vehicle taxes, which in 1982 ranged from 12 percent of total taxes in Ireland to 0.7 percent in Luxembourg and from 5 percent to 0.3 percent of Gross Domestic Product (GDP). In all countries there has been a decline in motor vehicle taxes as a share of total taxes from 1972 to 1982, with the decline being relatively sharp in all except Denmark.1 Further, they have been an inelastic source of revenue, and did not keep pace with the growth in GDP from 1972 to 1982.