Vehicle taxes as a policy instrument
Impact of electric cars and commercial vehicles on tax revenues, air quality and the climate
Tax incentives for electric cars remain a relatively expensive instrument to cut CO2 emissions despite measures taken in 2019 and 2020 to reduce their cost. Special rules for light commercial vehicles lead to significant tax losses and are accompanied by high costs as a policy instrument. Light commercial vehicles also hinder achievement of air quality and climate goals.
The main conclusion of our analysis is that electric cars lead to considerable tax losses, when measured both by revenue per vehicle and by reduction in CO2 emissions. To some extent, the tax losses can be considered as the cost of achieving the second key objective of vehicle taxation: contributing to air quality and climate goals by means of proportional and targeted tax incentives. Despite the measures taken in 2019 and 2020 to reduce the incentives for electric vehicles, they remain a relatively expensive instrument to cut CO2 emissions. The tax benefits are enjoyed mainly by corporate vehicle owners.
Light commercial vehicles
Most light commercial vehicles are diesel-powered vans. They account for a significant proportion of the total emission of CO2, nitrogen oxide and particulates from road traffic. Special tax rules, however, remove the incentive for commercial vehicles to contribute to the air quality and climate goals.
On the basis of the conclusions presented in our report and those in the report we published in November 2019 (Netherlands Court of Audit, 2019b), we make the following recommendations to the State Secretary for Finance with responsibility for taxation and the Tax and Customs Administration:
- Review the use of vehicle taxes as a policy instrument. If it is decided to continue the tax incentives for zero-emission vehicles, we recommend setting a proportionality standard to gauge the loss of tax revenue against the reduction in CO2 emissions and adapting the tax incentives accordingly. Tax incentives for zero-emission vehicles should take account of the imbalance between corporate and private vehicle owners.
- Consider adapting vehicle taxes in order to prevent zero-emission vehicles eroding tax revenues. The ‘user pays’ studies announced in the Climate Agreement can be a springboard for change (Ministry of Economic Affairs and Climate Policy, 2019).
- State the estimated loss of car and motorcycle tax revenue due to the special rules for light commercial vehicles in the overview of tax schemes in the annexes to the annual budget memorandum.
- Determine whether the special rules for light commercial vehicles are proportionate to achieve the revenue, air quality and climate goals of vehicle taxes.
- Consider revising the special rules for light commercial vehicles in order to introduce tax incentives that encourage the sale of models that emit less CO2, nitrogen oxide and particulates.
Why did we audit the impact of electric cars and light commercial vehicles on tax revenues, air quality and the climate?
Building on earlier publications on vehicle taxes (Netherlands Court of Audit 2019a and 2019b), the present report takes a closer look at the impact of zero-emission cars and light commercial vehicles in the light of the key objectives of vehicle taxation for 2017-2020 (Ministry of Finance, 2015b):
- to provide a stable source of government revenue based on justifiable and practicable vehicle taxes;
- to make a telling contribution to the air quality and climate goals by means of proportionate and targeted tax incentives for vehicles.
What audit methods did we use?
We used qualitative and quantitative audit methods to answer our audit questions. For example, we analysed parliamentary papers, policy documents, tax data and statistical statements. We also studied relevant literature, research reports and data.
We held interviews with officials at the Ministry of Finance (Directorate-General for Tax and Customs Policy and Legislation) and spoke to representatives of the Netherlands Environmental Assessment Agency (PBL) and the Netherlands Organisation for Applied Scientific Research (TNO). To analyse the counterfactuals for zero-emission vehicles, we consulted experts in the motor vehicle sector, including representatives of the RAI motor industry association, the Bovag vehicle dealers association, the Electric Vehicle Drivers Association (VER), the Association of Dutch Vehicle Leasing Companies (VNA) and researchers engaged in the Netherlands Company Car Study (NZO).
For the quantitative part of our audit we made as much use as possible of relevant and reliable sources, including the Road Transport Agency (RDW), TNO, Statistics Netherlands and the Ministry of Finance. In addition, we gained information on the vehicles from autowereld.nl and other relevant websites.
As well as these sources, we used queries from the Tax and Customs Administration’s data files on, for instance, motor vehicle tax. We did not check the accuracy of the queries themselves.
The State Secretary for Finance with responsibility for taxation and the Tax and Customs Administration and the State Secretary for Infrastructure and Water Management responded to our draft report. Their response has been included in full in our final report.