European Commission DG TREN In association with EC DG TAXUD and EC DG ENV FAIR AND EFFICIENT PRICING IN TRANSPORT – THE ROLE OF CHARGES AND TAXES An EU-Wide Review of Transport Charges and Taxes (National) in Commuter and Business Travel plus A World-Wide Review of the Use of Charges and Taxes (Local and Regional) to Fund Public Transport Final Report April 2000 Oscar Faber Open University Amsterdam Free University European Commission DG TREN In association with EC DG TAXUD and EC DG ENV FAIR AND EFFICIENT PRICING IN TRANSPORT – THE ROLE OF CHARGES AND TAXES An EU-Wide Review of Transport Charges and Taxes (National) in Commuter and Business Travel Plus A World-Wide Review of the Use of Charges and Taxes (Local and Regional) to Fund Public Transport Final Report April 2000 Prepared by: …………………………… Approved by: ……………………………… Tone Vanden Branden Howard Blessington Consultant Director Reviewed by: …………………………… (OFT only) Paul Knight Regional Director Job No: 17296TBM Telephone: +44 (0) 121 262 1900 Beaufort House Fax: +44 (0) 121 262 1999 94/96 Newhall Street Reference: Website: http://www.oscarfaber.co.uk Birmingham B3 1PB Date: 07 February 2000 Acknowledgements This report was written by: Paul Knight Oscar Faber, UK Tone Vanden Branden Oscar Faber, UK Stephen Potter Open University, UK Marcus Enoch Open University, UK Barry Ubbels Amsterdam Free University, the Netherlands The authors were supported by a panel of five external experts: Susan Scott Economic and Social Research Institute, Ireland Veli Himanen VTT Technical Research Centre, Finland Sebastian Belz Econex Verkehrsconsult, Germany Jeroen Groenendijk UITP, Belgium Chris Hewett Institute for Public Policy Research, UK The authors are grateful for the assistance provided by: Howard Blessington Oscar Faber, UK Peter Nijkamp Amsterdam Free University, the Netherlands John Whitelegg Eco-Logica, UK Erik Verhoef Amsterdam Free University, the Netherlands Aura Reggiani University of Bologna Finally, Oscar Faber would also like to thank all of the organisations and individuals who contributed to the study with ideas and information. Contents 1 Introduction 1 1.1 Study Background 1 1.2 Study Objectives 1 1.3 Policy Background 2 1.4 Report Structure 6 2 Transport Charges and Taxes in the European Union 8 2.1 Introduction 8 2.2 Methodology 8 2.3 Overview of Existing Instruments 10 2.3.1 Introduction 10 2.3.2 Vehicle Taxation 10 2.3.3 Personal income taxation 11 2.3.4 Corporate taxation 12 2.3.5 Tax treatment of public transport services 12 2.4 Country Reviews 12 2.4.1 Austria 12 2.4.2 Belgium 14 2.4.3 Denmark 15 2.4.4 Finland 16 2.4.5 Germany 18 2.4.6 Greece 20 2.4.7 Ireland 21 2.4.8 Italy 23 2.4.9 Luxembourg 23 2.4.10 The Netherlands 24 2.4.11 Portugal 27 2.4.12 Spain 28 2.4.13 Sweden 28 2.4.14 United Kingdom 30 3 Comparative Assessment of Transport Related Charges and Taxes in the European Union 34 3.1 Introduction 34 3.2 Vehicle taxation 34 3.2.1 Overview 34 3.2.2 Comparative Analysis 35 3.2.3 The Impact of Existing Vehicle Taxation in EU Member States 41 3.3 Fiscal Treatment of Commuting 42 3.4 Business travel 45 3.5 Corporate Taxation 47 3.6 Tax treatment of Public Transport Services 47 3.7 Strategic issues 48 3.8 Concluding comments 49 4 Review of Local/Regional Unconventional Charging and Taxation Measures 51 4.1 Introduction 51 4.1.1 Overview 51 4.1.2 ‘Unconventional’ Taxes and Charges and Principles of Taxation 52 4.1.3 ‘Unconventional’ Taxes and Charges and Transport/Environmental Policy 53 4.1.4 Assessing Unconventional Charges and Taxes 55 4.2 Unconventional Charging and Taxation Cases 55 4.2.1 Employer/Employee/Local Income Taxes 55 4.2.2 Property Taxes 56 4.2.3 Development Levies 59 4.2.4 Parking Levies 63 4.2.5 Charging for the use of roadspace 65 4.2.6 Local motoring taxes 68 4.2.7 Cross-Utility Financing 70 4.2.8 Consumption Taxes 72 4.2.9 Other Unconventional Charges 76 4.2.10 Combined Schemes 77 5 Assessment of Local/Regional Unconventional Charging and Taxation Cases 80 5.1 Assessment Criteria 80 5.2 Performance Assessment 81 5.2.1 Overview 81 5.2.2 Employer taxes 81 5.2.3 Property taxes 83 5.2.4 Developer levies 85 5.2.5 Parking charges and fines 86 5.2.6 Charging for the use of road space 88 5.2.7 Local motoring taxes 90 5.2.8 Consumption taxes 93 5.2.9 Cross utility financing 95 5.2.10 Other taxes 96 5.3 Lessons Learnt 98 6 Summary and Conclusions 100 6.1 Introduction 100 6.2 National Transport Related Charges and Taxes in the European Union 100 6.2.1 Overview 100 6.2.2 Existing Transport Charges and Taxes in the European Union 101 6.2.3 Transport Charges and Taxes in the EU – Conclusions 105 6.3 Local/Regional ‘Unconventional’ Charging and Taxation 107 6.3.1 Introduction 107 6.3.2 The Evaluation of Local/Regional Unconventional Charging and Taxation Measures 108 6.3.3 The Efficiency of Unconventional Mechanisms 110 6.3.4 Ear-marking (hypothecation) and efficiency 111 6.3.5 Local/Regional Unconventional Charging and Taxation – Conclusions 112 Tables Table 1.1 Vehicle, Fuel and Traffic Market-Based Incentives 4 Table 2.1 Additional lump sum deductions for commuting costs in Austria 13 Table 2.2 Tax treatment of employer provided commuting benefits in Austria 13 Table 2.3 Rules for reimbursement of business travel expenses 14 Table 2.4 Tax treatment of employer provided commuting benefits in Belgium 15 Table 2.5 Tax treatment of employer provided commuting benefits in Denmark 16 Table 2.6 Tax treatment of employer provided commuting benefits in Finland 17 Table 2.7 Tax treatment of employer provided commuting benefits in Germany 19 Table 2.8 Business Mileage Rates in Ireland 22 Table 2.9 Tax treatment of employer provided commuting benefits in Portugal 27 Table 2.10 Tax treatment of employer provided commuting benefits in Sweden 30 Table 3.1 Summary of vehicle related taxes in EU Member States 35 Table 3.2 VAT Rates on Acquisitions of Motor vehicles 36 Table 3.3 Registration taxes In EU Member States, types of vehicles taxed 36 Table 3.4 Registration and similar taxes applied to passenger cars by Member States 36 Table 3.5 Circulation taxes applied on passenger applied in Member States 39 Table 3.6 Unleaded Petrol Prices and Excise Duties in EU Member States 40 Table 3.7 Diesel Prices and Excise Duties in EU Member States 40 Table 3.8 Business Mileage Rates in the UK 46 Table 3.9 Costs of petrol cars in the UK 46 Table 3.10 Comparison of authorised rates with car costs 46 Table 3.11 Business Mileage Rates in Ireland 47 Table 6.1 Incentives and Disincentives for Sustainable Mobility 101 Table 6.2 Assessment of Transport Taxes in the EU 103 Table 6.3 Unconventional Charging and Taxation Measures 108 Appendices Appendix A – Bibliography and References 1 Introduction 1.1 Study Background Recent European Commission communications have highlighted the need to change the current structure of transport pricing in the European Union with the broad objectives of removing pricing distortions such that users pay a fair price for infrastructure use, taking into account both infrastructure costs and external costs. Pricing distortions occur in both private and public transport and concerns have been expressed regarding the generally ‘blunt’ nature of the public transport subsidies and the lack of clear targeting towards sustainable transport objectives. However, there is a general consensus that sustainable transport policies require the development of better quality and improved capacity public transport systems. Conventional economic instruments, namely operator fare revenues and public subsidies are limited in their ability to send the correct pricing signals to users and, further, tend not to provide sufficient funds to enable enhancements to public transport systems. Consequently, the European Commission is investigating the potential for unconventional forms of charging and taxation to support public transport operations and investments. In addition to raising revenue a key objective of fiscal policy is to bring about a shift in user behaviour that supports the goals of efficiency in transport, equity and sustainability. In this context, the existing transport taxation systems of EU Member States, in particular, the taxation of personal income and fringe benefits and company taxation contain a mixture of contradictory signals that provide both incentives and disincentives for the use of sustainable modes of travel for commuter and business transport. There is, therefore, a need to consider the inter-relationships between general and unconventional taxation systems and how the two types of instruments might be most efficiently employed to support sustainable mobility objectives. 1.2 Study Objectives The more specific objectives of the study were as follows: Part 1 - to provide a detailed world-wide overview of unconventional forms of charging and taxation at local/regional levels where receipts are totally or partly earmarked to support public transport; - to develop an understanding of the circumstances in which such unconventional charges/taxes can be made to work successfully; - to develop recommendations, based on detailed case studies, on the broad applicability of unconventional charging/taxation measures giving specific attention to possible distributional impacts (winners and losers). FISCAL INCENTIVES FOR SUSTAINABLE MOBILITY 1 C:\WINNT\Profiles\gellner\Desktop\Unconventional Taxation final.doc Part 2 - to undertake an analysis and comparison of the incentives and disincentives within European Union Member States’ taxation systems for using public transport, other sustainable modes and the car.