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Vehicle Ownership Taxation
SummaryFirst principles assesmentEvidence on performancePolicy contributionComplementary instrumentsReferences

First principles assessment

Why introduce Vehicle Ownership Taxes

Above and beyond a basic level of purchase tax, vehicle ownership tax is levied to constrain growth of the motor vehicle population at a predetermined annual rate (Phang & Asher, 1997). This rate is based on the percentage of expected growth that is deemed tolerable, and scrapage rates for that year, where they too are dictated. (It is possible to dictate that vehilces are srapped after x years through licencing and taxation schemes. This is done to ensure that individuals do not automatically own a car for life after their first purchase, and to make sure that the vehilces on the road have reasonably up to date pollution control, and possibly pricing,  technology.) Vehilce ownership taxation is generally applied on a national basis. The desire to control growth in car ownership stems from the need to minimise congestion and other associated negative impacts of car use. Control of car ownership levels is generally only considered in the most extreme cases, where other demand management policy instruments have failed to adequately control car use. Vehicle ownership taxes are based on an assumption that everybody will travel by car unless they are prevented from doing so. 

It is also worth noting that as ownership taxes form part of the fixed outlay necessary to purchase a vehicle, they may encourage drivers to drive more to obtain value for money if that outlay is particularly high, and usage costs are not prohibitive.

Demand impacts

Responses and situations

Response

Impact on vehicle kilometres by car

Expected in situations

Change departure time

-  

Change route

-  

Change destination

-  

Reduce number of trips

1

 

Change mode

3

Where vehicle scrappage after x years is part of the system, and purchase tax (for a replacement vehcile) has become prohibitive.

Sell the car

-4

Where taxation forms part of a quota system that specifies duration of ownership.

Move house

-

Assuming the taxation is applied on a national basis.

1= Weakest possible response,5= strongest possible positive response
-1= Weakest possible negative response,-5= strongest possible negative response
0= No response

Short and long run demand responses

The responses in this table are based on an ownership tax that at least keeps pace with annual inflation and does not have any associated scrappage or duration of ownership controls. It is also assumed that usage costs are high enough to prevent drivers from driving as much as possible to obtain ‘value for money’ from the initial purchase outlay. Further to this, responses over time are based on would be drivers not entering the car market and existing owners not replacing old vehicles that need to be scrapped due to prohibitive vehicle ownership tax levels.

Demand responses

Response

-

1st year

2-4 years

5 years

10+ years

Change departure time

-

-

-

-

-

Change route

-

-

-

-

-

Change destination

Change job location

-

1

1

2

-

Shop elsewhere

-

1

1

2

Reduce number of trips

Compress working week

-

1

2

2

-

Trip chain

-

-

-

-

-

Work from home

-

1

2

3

-

Shop from home

-

1

2

3

Change mode

Ride share

1

1

3

3

-

Public transport

-

1

3

3

-

Walk/cycle

-

1

3

3

Sell the car

-

1

2

3

-4

Move house

-

-

1

1

2

1= Weakest possible response,5= strongest possible positive response
-1= Weakest possible negative response,-5= strongest possible negative response
0= No response

Supply impacts

Where vehicle ownership tax constrains ownership levels below the market level, supply will fall to be in line with demand.

Financing requirements

There are no financing requirements assuming that means of collecting indirect taxes are in place.

Expected impact on key policy objectives

Objective

Scale of contribution

Comment

Efficiency

3

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation.

Liveable streets

1

Where reductions in congestion result from the tax.

Protection of the environment

1

Where reductions in congestion and pollution result from the tax.

Equity and social inclusion

-1

Those with a low income will be most affected by an ownership tax.


Safety

1

Where reductions in traffic levels result from the tax.

Economic growth

1

Where reductions in congestion result from the tax.

Finance

-4

 
1= Weakest possible positive contribution,5= strongest possible positive contribution
-1= Weakest possible negative contribution-5= strongest possible negative contribution
0= No contribution

Expected impact on problems

Contribution to alleviation of key problems

Problem

Scale of contribution

Comment

Congestion-related delay

3

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation.

Congestion-related unreliability

3

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation.

Community severance

2

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation.

Visual intrusion

1

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation, and less road building is undertaken.

Lack of amenity

-

 

Global warming

3

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation.

Local air pollution

1

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation.

Noise

1

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation.

Reduction of green space

1

Where the vehicle tax controls growth of the vehicle stock to the extent that less road building is required.

Damage to environmentally sensitive sites

1

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation, and less road building is required.

Poor accessibility for those without a car and those with mobility impairments

-

 

Disproportionate disadvantaging of particular social or geographic groups

-1

Those on low incomes will be most affected.

Number, severity and risk of accidents

1

Where the vehicle tax controls growth of the vehicle stock to the extent that the number of vehicles in use is reduced below that which whould result from the market level of taxation.

Suppression of the potential for economic activity in the area

1

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which whould result from the market level of taxation.

1= Weakest possible positive contribution,5= strongest possible positive contribution
-1= Weakest possible negative contribution-5= strongest possible negative contribution
0= No contribution


Expected winners and losers

Winners and losers

Group

Winners / losers

Comment

Large scale freight and commercial traffic

2

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation.

Small businesses

2

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation.

High income car-users

1

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation.

People with a low income

-3

those on a low income will be affected most.

People with poor access to public transport

-2

 

All existing public transport users

-

 

People living adjacent to the area targeted

-

NA.

People making high value, important journeys

1

Where the vehicle tax controls growth of the vehicle stock to the extent that congestion is reduced below that which would result from the market level of taxation.

The average car user

-3

 
1= weakest possible benefit,5= strongest benefit
-1= weakest possible disbenefet,-5= strongest possible disbenefit
0= neither wins nor loses


  Barriers to implementation

Scale of barriers

Barrier

Scale

Comment

Legal

-2

Legislation may be required for a new tax in some countries.

Finance

-

 

Political

-5

Significant public opposition is likely from imposition of such a tax.

Feasibility

-

Assuming means of collecting indirect taxes are already in place, there are no obvious practical problems.

-1= minimal barrier,-5= most significant barrier

 

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Text edited at the Institute for Transport Studies, University of Leeds, Leeds LS2 9JT