Page 38 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Unit 2: Central Excise Duty

Notes
A similar schedule applies to diesel-engined cars, except that all of the tax rates are slightly
higher. Conversely, slightly lower rates of tax are payable on cars fuelled by ‘clean’ fuels
such as natural gas and LPG.

For cars registered before 1 March 2001, a cruder banding structure applies. Those with an
engine capacity of less than 1.6 litres pay £105 per year, while those of 1.6 litres or more
pay £160. This simpler regime reflects the difficulty involved in retrospectively calculating
CO emissions of car models that may no longer be in production.
2
In terms of whole-life environmental costs, the choice of model made by a car buyer at the
time of purchase is highly significant. Over its lifetime, a car whose gasoline consumption
averages 8 litres per 100 km will consume around two tonnes more fuel than a car that uses
7l/100km, and release around seven tonnes more CO into the atmosphere.
2
The importance of fuel economy from a whole-life perspective is highlighted by Dr.
Stephen Potter of the Open University in the UK, who says car makers have traditionally
focused their environmental efforts on the relatively uncontroversial areas of
manufacturing, waste and recycling, while playing down the importance of fuel economy.
‘Yet these stages in a car’s life account for only 12% of key environmental impacts,’ says
Potter. ‘The fuel consumed by a car during its lifetime accounts for 70% of total greenhouse
emissions.’
It is too early to say what effect the new UK vehicle excise regime will have on car
purchasing behaviour. A spokesman for Vauxhall, the UK arm of General Motors, said the
introduction of the variable-rate tax structure had yet to be noticed by most car owners,
since few of them had yet had to renew their VED licence under the new regime.
Furthermore, few motorists are likely to rush to buy a new car simply because of the new
tax schedule. Any shift in buying habits will become apparent over time, as part of the
turnover of the UK car stock.

‘What we’re finding is that buying patterns are not changing at all,’ said the Vauxhall
spokesman. ‘But you have to expect that they will change in the next three years. People
will suddenly realise what’s going on, and take the next opportunity to change their
choice of car.’

Another effect, Vauxhall believes, will be an increase in the proportion of diesel-engined
cars sold, since diesel has a significant advantage over gasoline in terms of CO emissions.
2
The new VED regime represents a clear financial incentive for motorists to drive smaller,
less polluting cars. It has been presented to the public as part of an environmental education
campaign called ‘Are you doing your bit?’, and the publicity material explaining the new
regime is headed ‘The less it pollutes, the less you pay’.

In his annual Budget speech of 7 March 2001, the UK Chancellor of the Exchequer, Gordon
Brown, summarised the new tax regime thus: ‘For all newly purchased cars, a new four-
band vehicle excise duty rewards the most environmentally friendly vehicles.’ To drive
home the point that the scheme was designed to reward economical motorists rather than
penalise gas-guzzlers, he added: ‘Seventy per cent of all new cars will now enjoy a reduced
licence fee.’

Question:
Analyse the case and discuss the case facts.

Source: http://www.iisd.org/business/viewcasestudy.aspx?id=94s

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