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  • Service: Tax
  • Type: Survey report
  • Date: 4/25/2013

Green vehicles 

This section of the Index analyzes which governments are most active in using their tax systems to promote greener, fuel efficient, electric or hybrid vehicles and reduce fossil-fuel consumption in transport.
GREEN VEHICLES
Japan 1
France, UK 2
US
Belgium, Ireland, China, Spain

Source: The KPMG Green Tax Index, 2013.


This category includes tax penalties associated with vehicle use and purchase, as well as tax incentives related to the production, purchase or lease of green vehicles. Note that tax penalties and incentives related to fuels rather than vehicles are included in the Renewable energy & fuels section.


Of the 21 countries analyzed for this Index, all except two (Argentina and Russia) have some sort of tax penalty and/or incentive related to green vehicles.


Several of the countries identified here as the most active in green vehicle tax policy (Japan, France, the US and China) are also among the world’s top 10 net oil importers according to the International Energy Agency (IEA).1 It could therefore be argued, that these countries in particular could benefit from reducing oil consumption by transport.


It should be noted that many governments are also using non-tax approaches, such as direct subsidies to green vehicle industries. These have not been factored into the scoring of the Index but some examples are provided.


The background to burgeoning green vehicle tax policy is rapid growth in demand for road transport. In its 2012 World Energy Outlook, the IEA predicted that the number of passenger cars will double between 2011 and 2035 to 1.7 billion, and demand for road freight will also increase rapidly. Much of the increase will be driven by demand from developing countries and the growth of the 'global middle class'.


Transport already accounts for well over half (62 percent) of world oil consumption, up from only 45 percent in 1972, and the IEA predicts this share will increase.


These trends present governments, especially those that are net importers of oil, with a challenge: how to continue to satisfy demand for transportation in a world where fossil fuel markets are increasingly volatile and unpredictable, prices of oil are rising almost continuously and security of supply is an increasing concern.


Furthermore, many governments also face challenges from severe city pollution due to fossil fuelled vehicles, and the impacts of climate change, to which transportation is a major contributor.


According to the Asian Development Bank, transportation accounts for 23 percent of energy-related CO2 emissions and many experts predict a three to five-fold increase in emissions from transportation in Asian countries by 2030.2




Japan

Vehicle-related tax penalties in Japan are numerous and include oil, petroleum and gas taxes, and taxes related to vehicle size, type and use. Owners of automobiles pay an annual tax based on engine size. For private passenger vehicles with engine displacement of between 1500 and 2000, the tax rate is JPY39,500 (USD420) per year. There is also an additional tax on the purchase of a private vehicle payable at the time of new registration or transfer registration. A reduction in this tax rate is available for certain fuel efficient vehicles, but the current (at the time of writing) rate for private cars (before the reduction) is 5 percent of the vehicle’s value at the time of acquisition.


An additional motor vehicle tonnage tax is payable at the time of inspection or registration. Tax rates vary according to the type of vehicle, weight of vehicle and the intended use of the vehicle. For example, the tax rate for private passenger vehicles weighing not more than a ton is JPY8,200 (USD87) per year. Additional motor vehicle tonnage tax allowances are provided if vehicles satisfy certain requirements.


Tax incentives specific to vehicles include a capital allowance for certain refueling equipment. Alternative refueling equipment is included in Japan’s capital allowance of 30 percent of the cost of new advanced low-carbon and energy saving equipment, provided that the asset is purchased or produced in the period from 1 June 2011 to 31 March 2016 and put in use by business in Japan within a year.


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France

France penalizes the use of vehicles heavily. In fact, the country imposes four types of penalties. The tax penalties include a surcharge on the acquisition of a polluting vehicle, applicable to passenger cars registered for the first time in France. The amount of the surcharge varies depending on the CO2 emission rate (g/km) of the vehicle and rates are reduced by 40 percent for vehicles that use super-ethanol E85 (except for vehicles producing more than 250g/km CO2). As from 2013, the amount of the surcharge has been significantly increased compared with the previous year.


In common with Belgium, the UK and some others, France also taxes company cars , though certain hybrids are exempt. Any passenger car used by a business in France is subject to the tax, no matter which country the company is registered in. The rates of the tax vary according to the CO2 emission rates (g/km) of the vehicle. In addition, capital allowance rates for polluting tourism vehicles are limited to EUR9,900 (USD12,860) versus EUR18,300 (USD23,770) for other vehicles. Trucks are also taxed, depending on maximum loaded weight excesses of 3.5 tons.


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UK

The UK also has an annual car tax calculated on CO2 emissions and fuel type. The most polluting vehicles, emitting over 255g CO2/km, are taxed at GBP475 (USD723) per year whereas vehicles emitting 100g or less of CO2/km are exempt.3


Company cars in the UK are taxed, again with rates determined by the type of vehicle, fuel type and CO2 emissions. The UK also provides a 100 percent first year capital allowance for vehicles meeting low-emission requirements (less than 110g CO2/km).


London charges a congestion charge fee of GBP10 (USD15) per day from which low-emission vehicles are exempt.


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US

In common with many countries analyzed in this Index, the US taxes large vehicles ('gas guzzlers'). The US government established its Gas Guzzler Tax as part of the Energy Tax Act of 1978 in order to discourage the production and purchase of fuel-inefficient vehicles. The Gas Guzzler Tax is assessed on new cars that do not meet required fuel economy levels, currently 22.5 miles per gallon. These taxes apply only to passenger cars. Trucks, minivans, and sport utility vehicles (SUV) are not covered because these vehicle types were not widely available in 1978 and were rarely used for non-commercial purposes. The US Internal Revenue Service is responsible for administering the Gas Guzzler program and collecting the taxes from car manufacturers or importers. The amount of tax is posted on the window stickers of new cars - the lower the fuel economy, the higher the tax.


The Gas Guzzler Tax for each vehicle is based on its combined city and highway fuel economy value. Fuel economy values are calculated before sales begin for the model year. The total amount of the tax is determined later and is based on the total number of 'gas guzzler' vehicles sold that year. It is assessed after production has ended for the model year and is paid by the vehicle manufacturer or importer.


Incentives enacted in the US include a tax credit for qualified fuel cell vehicles, varying in amount from USD4,000 to USD40,000, depending on vehicle weight and date of purchase. An additional USD1,000 to USD4,000 credit for the purchase of fuel efficient vehicles, such as electric vehicles, also exists. The credit is not permanent and various provisions are set to expire by 2014. In addition, the US (like Japan) provides a tax credit, which is set to expire at the end of 2013, for alternative vehicle refueling equipment. The credit amount is calculated as 30 percent of the cost of the equipment, but is limited to no more than USD30,000 per taxpayer.


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Belgium

Belgium penalizes companies for providing environmentally unfriendly vehicles to employees. The penalty rate is linked to the vehicle’s CO2 emissions.


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Ireland

Accelerated capital allowances of 100 percent in the year of expenditure are available in Ireland for equipment purchased to manufacture certain energy efficient vehicles, such as electric, plug-in, lean burn and hybrids. In addition, Ireland provides lowered vehicle registration taxes for more fuel efficient/low-emission vehicles.


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Spain

The Spanish government, in common with many other countries, offers preferential registration tax rates on lower emission vehicles. Preferential rates for greener vehicles can also apply to the Mechanical Traction Tax, Spain’s second vehicle tax for which rates are set by local governments.


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China

In January 2012, China enacted a policy on purchase tax reduction or exemption for greener vehicles. Under the policy, purchase tax is reduced by 50 percent for eligible fuel-saving vehicles and exempted for eligible alternative fuel vehicles.


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Non-tax incentives

Many countries offer a variety of non-tax incentives aimed at promoting the uptake of greener, low-emission and alternative fuel vehicles.


Australia, for example, has a Liquefied Petroleum Gas (LPG) Vehicle Scheme which is aimed to increase the use of LPG as a transport fuel. Grants are provided for conversion of registered vehicles to LPG (AUD1,000) (USD915) or the purchase of new LPG vehicles (AUD2,000) (USD1,830). Grants are capped to 25,000 eligible claims per financial year. This program started in July 2011.


Canada’s Freight Technology Incentives Program provides cost shared funding to support the purchase and installation of proven technologies that can reduce the emissions of air pollutants and GHGs. Examples include hybrid switching locomotives, diesel anti-idling equipment and electronic speed control systems. The program requires a minimum funding request of CAD25,000 (USD24,439) — a maximum of 50 percent of project total eligible costs, or CAD500,000 (USD489,000) over a 2 year period.


China’s 12th Five-Year Plan, announced in March 2011, identified clean energy cars as one of three key investment areas.4 In March 2013, it was reported that China would impose strict new fuel efficiency standards on new cars. The rules will cut average fuel consumption to 6.9 liters per 100km (34 miles per gallon) by 2015 and to 5 liters per 100km (47 miles per gallon) by 2020.5


China has implemented a pilot program of subsidies in five cities, including Shanghai and Shenzhen, where subsidies are paid to manufacturers in order to reduce the price for purchasers. Despite 'lackluster' sales due to high production costs, China has announced it will retain and fine tune the subsidy system.6


In Japan the government provides subsidies ranging from JPY70K (USD740) to JPY900K (USD9,500) to purchasers of new eco-friendly vehicles satisfying certain fuel efficiency standards, provided that the vehicles are purchased in the period from 20 December 2011 to 31 January 2013 and used for more than a year by the same individual. Japan allocated a budget of JPY300billion (USD3.2billion) for these subsidies.


In Spain the government approved a EUR72 million (USD103 million) fund to promote electric vehicles in May 2011. The incentives include direct subsidies for the acquisition of new electric cars for up to 25 percent of the purchase price, before tax, to a maximum of EUR6,000 per vehicle (USD8,600), and 25 percent of the gross purchase price of other electric vehicles such as buses and vans, with a maximum of EUR15,000 (USD19,300) or EUR30,000 (USD38,600) depending on the range and type of vehicles.


Since January 2011, the UK offers a plug-in car grant. The program provides a 25 percent grant towards the cost of new plug-in cars, capped at GBP5,000 (USD7,615). Vehicles must meet certain criteria including emissions levels, range, minimum top speed, warranty, battery performance and safety. The list of eligible vehicles is continually updated, and certain vans were recently included.


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1 Asian Development Bank. July 2010. Reducing Carbon Emissions from Transport Projects.

2 https://www.gov.uk/vehicle-tax-rate-tables. Accessed 23 March 2013.

3 http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublications/Documents/China-12th-Five-Year-Plan-Energy-201104.pdf. (PDF 400 KB) Accessed 23 March 2013.

4 http://uk.reuters.com/article/2013/03/21/us-china-auto-fuel-idUKBRE92K03E20130321. Accessed 24 March 2013.

5 http://www.china.org.cn/business/2013-03/18/content_28274515.htm. Accessed 24 March 2013.

 

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