Vehicle registration tax (VRT) should be abolished on all cars sold in Ireland and replaced with a UK-style congestion charge or an increased tax on petrol, according to proposals submitted to government by the Commission on Taxation.
The radical measures are aimed at "taxing driving, rather than taxing cars" according to the report of the commission, which goes to the Department of Finance this week. If the government implements the measures it would represent a major change in taxation and transport policy.
The recommendations, which could provide an unprecedented boost to the faltering Irish motor trade, would involve charging drivers a fee when they enter designated and often congested urban areas. For example, in Dublin the charge would most likely kick in if a car travelled within either of the two main canals.
The report comes to the conclusion that VRT is a "lumpy tax" that is dependent on one large purchase being made by a consumer. A tax on driving and use of the road network would throw the net much wider and mean the government would receive large revenues even if car sales slumped as they tend to in recessions.
"It will provide the exchequer with more stable sources of revenue and is part of the general drive to broaden the tax base,'' a commission member told the Sunday Tribune.
The London congestion charge levies drivers who enter certain defined zones from the hours of 7am to 6pm with a charge of £8. Residents who live within the congestion-charge areas and those driving green vehicles are either exempt from the levy or can avail of a discounted rate.
A set of cameras have been placed around central London to take images of drivers' registration plates, and a number of payment methods, online, by phone or in a shop, are available.
The motor industry desperately wants a car-scrappage scheme introduced in the December budget, a measure it says could help to salvage large parts of the sector, but the idea of abolishing VRT could provide an even bigger lift, although petrol taxes or congestion charges are not popular with the motor industry. VRT is the main reason why cars are more expensive in Ireland than in other EU countries. The prices of new cars here increase by up to 30% when VRT is applied.
Commission members who spoke to the Sunday Tribune said the measure was also designed to have a 'green' impact.
"The idea is to lower people's use of their car and get them to switch to public-transport alternatives.
"Just taxing the car itself doesn't do that, because once somebody has paid the tax they can drive it as much as they like.''
A congestion charge, which the report refers to, would be more popular than a general increase in petrol costs, which are already high based on recent hikes in oil prices. While the government's tax receipts for 2009 remain under pressure, the importance of VRT has hugely dropped over the last six months.
Net VRT receipts in the first half of the year amounted to €269m, compared to €866m for the same period last year, according to Department of Finance figures.