Pre-tax prices driving car exports, says survey

The exchange rate with sterling and the lower pre-tax price of cars here compared with the UK were the driving force behind estimated sales of approximately 10,000 to 15,000 cars for export last year, according to the Society of the Irish Motor Industry (SIMI).

A survey carried out in 12 EU member-states in November 1998 found that the Republic was about average in terms of pre-tax price for most cars. However, the Republic was found to be the most expensive jurisdiction for the Toyota Starlet, where the Irish price was 23 per cent higher than the cheapest recorded.

For most car types, Britain and Northern Ireland were found to be the most expensive jurisdiction, being 30 per cent higher in some cases than the lowest price recorded. The reasons behind the high cost of cars in the UK are currently the subject of an inquiry by that state's competition authority.

With the pre-tax rate in the UK being so high and sterling being so strong (84.29p sterling to the pound), UK consumers have been seeking to buy cars here.

EU consumers may buy new cars in any EU member-state and pay tax in their own jurisdiction. So consumers in Britain and Northern Ireland can buy cars here at the pre-tax price, and then pay VAT in the UK when the car is delivered. The VAT rate in the UK is 17.5 per cent, compared to 21 per cent in Ireland. Irish consumers also pay Vehicle Registration Tax (VRT), which is not charged in the UK.

Mr John Quiltor, of Blanchardstown Renault, said he is currently in the process of selling two Renault Megane Scenic 1.6 cars to UK consumers. The cars are being sold at the pre-tax price of £10,000 each, he said. If the buyers were resident here, the addition of VAT and VRT would increase the price to around £18,000.

For buyers resident in Britain or Northern Ireland, the £10,000 for the Megane 1.6 will cost £8,429 sterling. After UK VAT is applied, the price will be £10,199 sterling. The attraction for the UK consumer is obvious and the Republic, of course, sells right-hand drive cars.

SIMI has long campaigned against the application of VRT though in the most recent budget the Minister for Finance, Mr McCreevy increased it. The society is critical of both the tax itself and the way it is applied.

VAT is applied to the pre-tax price of a car. VRT is then charged at between 22.5 per cent and 30 per cent.

According to the European Consumer Centre in Dublin, the VAT rate for new cars is highest in Denmark and Sweden.