Agora is in favor of a rapid reform of the vehicle tax and company car taxation

Based on a study, the think tank Agora Verkehrswende is in favor of a rapid and structural reform of the motor vehicle tax and company car taxation. In their current form, both fiscal policy instruments do not match the federal government’s target of increasing the number of clean electric cars in Germany to 15 million by 2030 and almost halving CO2 emissions in the transport sector.

According to Agora, the motor vehicle tax and company car taxation should be designed in such a way that less emission-intensive and more emission-poor vehicles are purchased. For this purpose, vehicle taxation must be concentrated on the first registration and set high, as well as differentiated according to CO2 emissions and weight. The previous economic benefits of using company cars privately as a salary component should be completely removed.

“With the reform of passenger car taxes and the private use of company cars, the federal government can herald the urgently needed fiscal change in the transport sector,” said Wiebke Zimmer, deputy director of Agora Verkehrswende. “The false incentives created by outdated privileges and subsidies for combustion vehicles jeopardize the necessary market advancement of electromobility and the shift from mobility to buses, trains, bicycles, sharing cars and pedestrian traffic. It is therefore now necessary to rethink the tax structure and ensure more social balance and climate protection. “Road transport in an economically efficient way. The reform package is an essential part of the immediate climate protection program to be presented by the federal government in mid-July.”

Hardly any incentives to transform the car fleet

The study, commissioned by the Agora of the Financial Research Institute at the University of Cologne and the RWI – Leibniz Institute for Economic Research, analyzes the effects of existing taxation on motor vehicles and company cars, including through its own household studies. On the other hand, it shows how taxation can be restructured to meet climate and social policy requirements.

The motor vehicle tax in its current form, with an annual volume of around 10 billion euros, despite the existing CO2 component, is hardly suitable to encourage the purchase of a car with as few emissions as possible, because it is spread over years and is set at a low level. Studies have shown that for most people who buy a car, toll is not a factor in their decision to buy a particular model. Company car taxation causes companies and employees to buy particularly large and powerful cars and use them to a large extent privately, often with a fuel card from the employer. It costs the state between three and six billion euros a year. In addition, high-income households in particular benefit from the company car privilege.

Less privileges, more justice

According to Agora, a climate-politically effective vehicle tax sends a strong price signal for the purchase of low-emission cars as soon as they are first registered. The size of the tax is primarily based on CO2 emissions and also on the weight of a vehicle: The more CO2 a vehicle emits and the more it weighs, the higher the tax rate. A progressive tariff would mean a high charge for particularly high-emission engines.

In combination with the purchase premiums for electric cars, the reformed car taxation creates a bonus penalty system with a high ecological steering effect for car purchases: According to Agora, high-emission vehicles would be more expensive, low-emission vehicles cheaper. This also makes sense for social reasons. The proceeds from the motor vehicle tax constituted a tax counterweight to the cost of the purchase premium. Under the current regulation, all taxpayers, including those with low incomes, must pay for e-car premiums.

From Agora’s point of view, the most important goal in the company car tax reform is to create fiscal neutrality. Whether someone is given a company car for private use or a cash salary increase with which the same car can be bought and used privately should not make any difference for tax purposes. In addition, the taxable financial benefit of private use of a company car had to be reassessed.

If at the same time the vehicle tax is fundamentally reformed, the value should also be based on the increased vehicle taxation at first registration and on the extent of private use and no longer only on the list price. If such a reform of the motor vehicle tax and the introduction of a user-specific component does not become a reality, the tax assessment based on the list price should be significantly increased: For internal combustion engines, it will mean an increase in the monthly taxable benefit per one to at least two percent.

Lack of momentum from EU naval borders

Agora sees the reform of car and company car taxation as part of an overall strategy for fair, ie socially balanced and climate-friendly, prices in road traffic. When setting the new tax rates, it is important to take into account the interaction with other policy instruments – from the EU’s fleet limits and the CO2 price of fuel to a future need for a kilometer – based car tax. The lower the ambitions in one area, the more ambitious the other instruments must be. The figures used in the study therefore served primarily to illustrate the proposed reform model. For a final proposal for new rates in car and company car taxation, the political course for the associated instruments also had to be determined.

“Without the reform of motor vehicle and company car taxation, it will not be possible to achieve the climate goals in transport and lead Germany out of its dependence on oil,” says Carl-Friedrich Elmer, project manager for transport economics at Agora Verkehrswende. “In recent years, EU naval borders in particular have helped to reduce CO2 emissions from new cars. A far-reaching completion for new registrations of internal combustion motor vehicles in 2035 is an important step, but in the years up to 2030, the ambitious level of the limit values ​​will hardly inspire further electromobility. It is too low for the German climate protection targets. It is now all the more important that the Federal Government provide the right incentives for the transformation of the passenger car fleet in Germany with national tax reforms. Motor vehicle tax and company car taxation have the greatest influence on which cars are bought in Germany. ”

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