Economic and fiscal benefits of electric vehicles: Madrid, Milan and London

You might assume that the main beneficiaries from environmental-friendly tax measures taken by governments from all over the world are the tweeting birds, the blooming flowers and the leafy trees. Far from that idea, it would be more accurate to state that they are the second on the list, since most of these measures have, as a primary target, to –what a surprise – increase collection.  Besides, this type of taxation is commonly well-regarded by the average taxpayer, as the money collected is meant to be spent in environmental-related causes, and more importantly, the moral reasons which support these taxes, making them almost indisputable.

 But it is not all bad news: following this line of thought, if you pollute, you will pay. But what if you don’t pollute? Although tax laws are reluctant to grant exemptions to avoid a loss on collection, the punitive effect of these taxes has no meaning at all if you opt for greener alternatives.

 Let’s analyze how we can save tax money by choosing the green lane. Cars are one of the most polluting machines, so let’s see how choosing a green car or a gas-guzzling one can affect our pocket.

Our traditional option will be a Chevrolet Captiva 2.2 Diesel, which emissions are 219 grams of C02 per km. As a more sensible, eco-friendly choice we have selected the Renault ZOE, fully electric and with no CO2 emissions at all. Although they are very different cars with a different target audience, they come in handy to illustrate how differently they are treated.

LIVING IN MADRID

Vehicle Registration Tax

The Vehicle Registration Tax (Impuesto Especial sobre Determinados Medios de Transporte, commonly known as “Impuesto de matriculación”) levies the first registration of a vehicle; it is the reminiscence of the old Luxury Tax, which disappeared in 1986 when the VAT was introduced. Spain is one of the few countries in which it still exists and it is expected to be derogued in a near future. It has four brackets, as shown below: 

Rate	CO2 Emissions
0%	< 120 gr/km
4,75%	120 gr/km - 160 gr/km
9,75%	160 gr/km - 200 gr/km
14,75%	> 200 gr/km

The Renault, thanks to its zero emissions engine would pay no taxes, whereas the polluting Chevrolet will pay an extra of:

Taxable base: 24.300€ x 14,75%= 3.584,25€

Vehicle tax

The “Impuesto sobre Vehículos de Tracción Mecánica” is a local tax in which engine power determines the fee. Its taxable event is the ownership of a road-legal vehicle. The fees in Madrid are:

Engine power (in fiscal horse power)	Fee
Less than 8	22€
8 - 11,99	66€
12 - 15,99	143€
16 - 19,99	179€
From 20	224€

The electric Renault with a tax horsepower of 8,32, would pay 66€ per year, but there is a 75% tax relief on electric cars, so it would be 16,5€ per year.
The Chevrolet, with a tax horsepower of 14,23 would pay 143€, with no tax relief.
Here you can see how fiscal power is determined.

Other

 Driving an electric vehicle (also known as EV) has some perks, such as being able to park your car on the street at no cost in the Restricted Parking Area. This same action would imply up to 2,5€ per hour in a traditional car. Also, in 2014, electric cars are granted a subsidy by the Government; in the case of the Renault it would be up to 6.500€.

 The new Personal Income Tax Law also includes a 30% tax relief on energy efficient cars (still to determine) in the terms of benefit in kind.

LIVING IN MILAN

Vehicle Registration Tax

As opposed to many others, the province of Milano does not grant any tax relief to electric cars.

Vehicle Tax

It is a local tax too, but its administration and collection are assigned to the administrative Regioni- in this particular case, Lombardia. Its original name is Tassa Automobilistica, also known as bollo auto. It applies to cars inscribed in the public registry of vehicles whose owners live in Lombardia.

According to the Legge Regionale 14 July 2003, n. 10, electric cars are granted a permanent exemption, so no taxation here for the Renault.

On the other hand, the Chevrolet will be levied as it follows:

According to its polluting potencial, it has been classified as EURO 5. This system consists of a series of directives approved by the European Parliament, setting a standard in vehicle homologation as far as emissions are concerned.

It has a power of 120 KW, and there are two brackets:

POWER	€/KW
0-100 KW	2,58
From 100 KW	3,87

As a result, the Chevrolet would pay an annual fee of 335€

Other

Electric cars are exempt from the charge of Area C, a congestion charge existing in the center of Milan, whereas a resident with Diesel Euro 5 homologated cars would pay 2€ per day.

Also, electric cars enjoy free parking in both the yellow (residents) and blue zone. Regular cars pay up to 3€/hour.

Besides, car insurance tends to be lower in electric cars, due to a number of reasons: they are less powerful and dangerous, and their drivers tend to be less fraud prone, more respectful with the rest of the traffic and more environmental-conscious.

LIVING IN LONDON

Vehicle Registration Tax

There is a £55 fee, which applies for both vehicles. As we can see, it differs substantially from the Spanish tax.

Road Tax

 As well as in Spain, the rates scheme of this tax were modified to levy in a more intense way polluting vehicles: for cars registered before 1 March 2001 the rate of vehicle tax depends on its engine size. The rate for cars registered on or after 1 March 2001 depends on CO2 emissions and fuel type.

Due to the CO2 emissions and type of fuel used, the Chevrolet will pay a fee of 285€ a year.

On the other hand, EV’s are exempt, as the electricity in the Renault comes from an external source or an electric storage battery not connected to any source of power when the vehicle is moving.

It should be mentioned that a tax disc was placed in the windscreen as a proof of having paid the tax; it was compulsory to any car on the road, but not anymore, as from 1 October 2014 the physical tax disc was no longer issued and enforcement of the taxation is through an automatic system. It was introduced in 1920 and was part of the motoring culture in the UK (more here)

Other

The electric Renault would be exempt for the notorious London Congestion Charge; meanwhile the Chevrolet would pay £11.50 a day.

Also, the British Government concedes grants, providing a subsidy of up to £5,000, towards the cost of an electric car. The grant is automatically deducted from the retail price when an eligible vehicle is purchased.

 Another relevant perk can be found on company car tax: a tax which is payable on a certain percentage of the total value of your car. The percentage is determined based on the emissions of the car. It can represent up to a 37% in some cases, but electric cars are exempt-until April 2015. In the case of a 20% rate taxpayer, the Chevrolet would pay £1.942 per year.

 It is clear that all these benefits are just a temporary measure to boost the sales of electric cars. In a future where most of the cars were electric, collection could be seriously damaged, as it has happened in Norway (see here). At the same time, electric cars still have a lot to improve and have some flaws (most of them related to autonomy) that will be resolved by future generations of EV, but by then it is likely that their taxation will not be as convenient as it is now.