Opinion of the Economic and Social Committee on the "Impact on competitiveness created by differentials in road transporting vehicle duty and licensing taxation in the EU Member States (Own-initiative opinion)"
Date: 2001-07-11
Institutions: European Economic and Social Committee
Subjects: EU Member State, competition law, environmental policy, environmental tax, road transport, vehicle tax

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Official Journal of the European Communities

17.9.2001

Opinion of the Economic and Social Committee on the ‘Impact on competitiveness created by
differentials in road transporting vehicle duty and licensing taxation in the EU Member States
(Own-initiative opinion)’

(2001/C 260/03)

On 19 October 2000, the Economic and Social Committee, acting under the third paragraph of Rule 23
of its Rules of Procedure, decided to draw up an Opinion on ‘Impact on competitiveness created by
differentials in road transporting vehicle duty and licensing taxation in the EU Member States’.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for
preparing the Committee’s work on the subject, adopted its opinion on 6 June 2001. The rapporteur was
Mr Tosh.

At its 383rd plenary session on 11 and 12 July 2001 (meeting of 11 July) the Economic and Social
Committee adopted the following opinion unanimously.

1.

Introduction

compared to 1-6 % for energy and telecom costs. Individuals’
transport costs amount on average to 6 % of net income,
which shows the significance upon mobility, both for work
and leisure.

1.1.
The ESC is concerned by the differentials that currently
exist between Member States’ regimes for taxing and licensing
vehicles and for levies and charges for infrastructure use. It can
be seen that these direct operational tax differentials, together
with currently 15 labour market regimes and 15 overall
taxation accounts make transport costs, and particularly road
transport costs, diverge widely. They are such that regional
distortions are an inevitable outcome and could have a negative
impact on EU measures and frustrate the creation of a cohesive
Single Market. The ESC believes that in order to reduce
distortions to competition a more fundamental harmonisation
is needed.

Transport

transcends
is a production factor
1.2.
national boundaries. Its capacity to defy ‘national’ embedment
extends the opportunity for operators to exploit the open EU
market. Some EU-level controls on weights and driving hours
have helped make the playing field more level (1).

that

1.4.
Recent reactions to the ‘fuel crisis’ by transport interest
groups across Europe have highlighted the degree of passion
and threat to livelihoods. The ESC wishes to table the key
aspects of the debate and examine if intervention at EU level is
appropriate or necessary. Supply-side fuel price volatility,
caused both by fluctuating oil prices and their dollar denomi-
nated exchange rate, together with the contraction in overall
supply time-frames such as needed by ‘just-in-time’ production
and e-business, have exacerbated these trends. The open
market has, by and large, removed the protection of ‘old-
fashioned’ strategic reserve in the transport loop and systems.

Transport modes and their infrastructure rank along-
1.3.
side finance, energy and telecoms in their cross-sectoral reach
and impact upon Community production. Typically transport
costs for industry amount to 3-9 % of production costs

(1) See ESC opinion on the Proposals for Council Directives concern-
ing certain aspects of the organisation of working time to cover
excluded sectors and activities, OJ C 138, 18.5.1999, and ESC
opinion on the Proposal for a Directive of the European Parliament
and of the Council amending Council Directive 96/53/EC laying
down for certain road vehicles circulating within the Community
the maximum authorised dimensions in national and international
traffic and the maximum authorised weights in international
traffic, OJ C 123, 25.4.2001.

1.5. Member States have unique fiscal regimes. The ESC
can only address the competitiveness aspects of differentials.
However, where there are intra-Community distortions the
ESC should signal its concern. A clear example is the view
often relayed by Exchequer Chancellors that high fuel duty
levels are a mechanism to moderate behaviour and meet
environmentally-motivated emission objectives. This should
be accompanied by transparency in the allocation of remedial
funds e.g. transport infrastructure, ‘Mobility to Work’ initatives
or environmental reform.

1.6.
The illegal or abusive exploitation of differentials, e.g.
in the form of higher than permitted quantities of diesel
transported, and the displacement to ‘flags of convenience’ by
operators are other unwelcome manifestations.

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1.7.
This opinion focuses on the road-haulage sector. In the
European Union today, road is the dominant mode of
transport. Road freight has almost trebled in Western Europe
since 1970. Between 1990 and 1995 road freight in Western
Europe grew by 24 % while economic growth was only 4 %.
These trends will continue and France, Germany and Italy all
expect 30-50 % growth between 1995-2010.

1.8.
This opinion considers only inter-country cost differ-
ences as generated by differences in their structure of transport-
specific taxes and charges which remains a very important
factor in determining competitiveness between national hauli-
ers operating in each others markets (1). It ignores the influence
of market-generated differences in transport costs. Social and
labour aspects and indirect taxes such as those affecting wages
and social contributions can exacerbate uncompetitiveness but
are not in the scope of this opinion (2). This report also does
not broach the additional costs to society in general (pollution,
noise, and congestion and damage to infrastructure) caused by
more intensive provision of transport services (3). Tackling the
unsustainable transport trends is an essential item of the EU’s
Sustainable Development Strategy (4).

(1) Harmonisation in Road Transport: Efficient Transport Taxes and
CEMT/
and

Recommendations,

Conclusions

Charges,
CM(2000)14/FINAL.

(2) See ESC opinion on the Proposals for Council Directives concern-
ing certain aspects of the organisation of working time to cover
excluded sectors and activities, OJ C 138, 18.5.1999, and ESC
opinion on the Proposal for a Directive of the European Parliament
and of the Council amending Council Directive 96/53/EC laying
down for certain road vehicles circulating within the Community
the maximum authorised dimensions in national and international
traffic and the maximum authorised weights in international
traffic, OJ C 123, 25.4.2001.

(3) See ESC opinions on the White Paper ‘Fair Payment for Infrastruc-
ture Use: A phased approach to a common transport infrastructure
charging framework in the EU’ COM(98) 466 final, OJ C 116,
28.4.1999 and the Green Paper ‘Towards fair and efficient pricing
in transport — Policy options for internalizing the external costs
of transport in the European Union’ (COM(95) 691 final), OJ
C 56, 24.2.1997.

(4) Communication from the Commission ‘A Sustainable Europe for
a Better World: A European Union Strategy for Sustainable
Development — The Commission’s proposal to the Gothenburg
European Council’, ESC opinion in elaboration.

2. Transport-specific taxes and charges

Transport-specific taxes and charges fall

2.1.
following categories:

into the

— vehicle taxes: annual motor vehicle (MV) charges (5).
Annual MV charges are levied in all EU States and are
sometimes differentiated by type of car or HGV;

— fuel taxes: excise duties on fuel, sometimes differentiated

by type of fuel;

— direct charges for the use of the infrastructure: paid at
point-of-use, mostly for motorways and for singular
passages like bridges and tunnels.

The April 1999 study of the Committee of Deputies,
2.2.
Group on Road Transport, of the European Conference of
Ministers of Transport (6), which was the most recent and
comprehensive analysis available, compared Austria, Germany,
the UK, Switzerland and
the Netherlands,
Spain, France,
Hungary and looked into the intricacies of
the taxation
framework. To illustrate:

— all eight countries levy fuel or energy excise duty e.g.,

diesel duty;

— some levy flat-rate user charges e.g., tolls;

— some rely on local taxes e.g., national licensing fees; and

— some levy variable user charges.

The ESC regrets that comparative data do not exist for all
Member States and other European countries and asks the
Commission to make more comprehensive data available in a
future study.

2.3.
Because of the variations in taxation regimes it is
impossible to make focused duty comparisons. For the same
reason it is not possible to be conclusive on the surpluses or
deficits of revenues as against expenditure on infrastructure.

(5) We do not consider sales tax on new vehicles.
(6) CEMT/CS/TR(98)/rev.

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2.4.
By 15 September 1998 UK fuel duties were 250 %
those of Spain whereas the UK fuel base price was equal lowest
with France. The UK’s duty rate as a percentage of price before
tax was 300 % that of Austria and 240 % that of next ranking
France. This abstracted reference is of course selective while
linkage of other national fiscal costs with fuel costs is as
important as recognition of
the commercial reality that
purchasing transcends national boundaries.

2.10.
Finally, the METR corrected for gross book transfers,
is indicative, but not conclusive — it deducts expenditure but
not all external costs. The range of rates shows wide divergence
with the UK, Germany and France ahead at 40 % taxation level
and Austria down at 17,5 %.

2.5.
The study shows the territorial structure and exhibits
the divergent characteristics of the taxation base. The UK
system is significantly based on vehicle taxation and therefore
nationality, whilst Spain and France are more "territorial" and
rely on direct charges for revenue.

2.6.
Total taxation if defined by tonne-km, shows the UK
to lead the field in total tax recovery, being 230 % ahead of
the lowest: Austria. France and the UK are distinctly ahead (by
200 %) in the application of composite tax rates.

2.11.
the METR ‘acts like a mirror’
combines:

The initial conclusions of this CEMT study hold that
to reflect differences, and

(a)

the share of input costs to each transport mode and

(b)

the various tax rates applicable to these inputs (in each
country).

2.7.
However, the cost of other inputs, particularly on the
labour side, is lowest amongst EU countries in the UK with
France and the Netherlands 150 % above.

2.12.

It clearly suggests that:

2.8.
Finally the study compares the respective composite
marginal effective tax rates (METR), which distils the applicable
tax rates for each production input — labour, capital and
gross external charges. This weighted METR for road-related
transport service sees the UK and France lead the field at a
level of 45 % with the Netherlands at 32 % and Switzerland at
28 %.

2.9. When the study addresses the relationship or net
balance of road and rail infrastructure spend over revenues,
the study shows that some countries such as Austria and the
Netherlands transfer huge surpluses, as high as 160 % of that
infrastructure spend, into general revenue to subsidise other
sectors of the economy, whilst France and Germany zero
balance or slightly subsidise infrastructure expenditure. Worth
noting also is the significant distortion brought about by the
universal failure to internalise external costs such as those for
congestion and accidents, a practice which can be considered
to entail a degree of ‘hidden’ subsidisation which in effect
distorts these comparisons.

— for road modes the relationship between (a) and (b) is
inverse — that is the highest rate of tax applies to the
input with the lowest share in cost. This is not the case
for rail where electricity attracts only residual fuel taxation
and labour taxation dominates;

— from one country to another the fuel or energy rates
alone are not good enough for identifying differences in
road and rail transport costs;

— the accounting data setting out differences in transfers
between the road and rail sectors need to reflect total
marginal social costs including external costs, for com-
parisons to be worthwhile. The METR feature of positive
and negative fiscal transfers renders these calculations
‘insensitive’.

2.13.
The above summary cannot do complete justice to
the study, but reveals the complexity of taxation and expendi-
ture in the transportation charging arena and importantly
signals the diversity in allocation of income, infrastructure
spend and transport policy.

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2.14.
The average contributions of the different taxes and
charges to the total revenue from road taxes and charges were,
for the EU countries and Switzerland (1) — vehicle charges:
25 %; fuel taxes: 70 %; and road charges: 5 %. However, the
size and importance of these charges vary greatly across the
countries (2). Because of
these inter-country differences in
charging structure there are differences in transport costs —
both in terms of overall cost and in terms of the components
of cost — between the EU countries (3).

2.15.
Because of these cost distortions, road haulage oper-
ators respond by locating where costs are lowest and refuelling
where fuel prices are lowest. These distortions in the market
for transport point to the importance of harmonising road

taxes and charges so as to enhance inter-country competi-
tiveness in the provision of transport services.

3. An illustrative example

The stark commercial contrast of the divergence in
3.1.
operational transport costs can be seen on land boundaries. A
brief comparison of the situation between the Republic of
Ireland and Northern Ireland (UK) shows how they stack up
for a typical haulage operation. Consider an SME haulier
operating ten 40 t trucks with the tractor units on two axles.
Drivers work 50-hour weeks for 42 productive weeks per year.
The business generates GB£1.2m per annum with pre-tax
profits of £ 36 000 . The key costs in Sterling would be as
follows:

Vehicle Excise Duty

Diesel

Wages

Corporation Tax

Total

Northern Ireland

57 500

321 000

174 000

7 200

Republic
of Ireland

11 000

202 000

180 000

9 000

559 700

402 000

%

– 81

– 37

+ 0,03

+ 25

– 28

3.2.
Neither country has significant road charging. It is
clear that differentials in duties are forcing operators to
consider their ‘flag’ registration, though it is not a simple
matter of re-registration in the lowest cost country. For this
arrangement to succeed the haulier would need to be able
to demonstrate
‘base’ qualification and satisfy its EU
interpretation. The comparison is further frustrated by the
exchange-rate fluctuations that
impact, on a daily basis,
where the Sterling/Euro relationship has changed signifi-
cantly.

3.3.
A number of distinct unique regional distortions can
be identified, where the issues are shaped by regional factors.
A case study is shown, but could, with different relationships
apply in the Balkans, in the Mediterranean or Scandinavia, or
as between Belgium and Luxembourg.

4. Enlargement

(1) For details of these charges across the EU, see Variabilisation and
INFRAS, Zurich,

Differentiation Strategies in Road Taxation,
2 June 2000.

(2) For example, the UK could be regarded as a ‘fuel duty-oriented’
country while France, Italy and Spain could be regarded as ‘toll-
oriented’ countries.

(3) First, differences in transport-specific taxes and charges are not
the only source of tax-induced differences in transport costs.
Inter-country differences in taxes imposed on the labour inputs
(income tax; social security contributions) and the capital inputs
(allowable depreciation deductions against tax) that are used in
the production of transport services also contribute to cost
differences.

4.1.
Accession countries appear to offer a considerable
competitive threat to the present EU road-haulage industry.
While EU-based operators will do better in the logistics side of
road transport former CEEC operators will dominate general
haulage. In particular East-West traffic is 80 % dominated by
CEEC where truck operating costs (according to Phare) average
two-thirds of EU levels. CEEC average wages are at one-fifth of
the EU’s. Fuel costs can be above EU average, as in Hungary,
or only 25 % of EU-average as in Albania. Similarly, annual
truck taxes range from 300-430 % of EU average in the Czech
Republic to only 8 % of EU average in Bulgaria.

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4.2.
However, productivity for trucks in the accession
countries is 12 % below EU levels. The EU average kilo-tonne
costs EUR 0,80, 10-15 % higher than CEEC haulier charges, but
costs are expected to converge as EU ‘acquis communautaire’ is
adopted (1).

often the proper vehicle for such problem-solving. In certain
cases and under certain circumstances successful co-ordination
of the local (inter-state) disparate decisions would assure zone
harmonisation and sector alignment and provide an alternative
to EU standardisation.

5. Observations

5.7.
The yo-yo price fluctuations induced by ad-valorum
fuel taxation bring unreasonable disturbance to the economy
and mobility and should be replaced by a flat-rate levy.

5.1.
The transport debate in general needs to rise to the top
of the socio-economic agenda to ensure that its peculiar
impact upon 21st century society is recognised and that
a political debate takes place. This concerns in particular
management practices and principles for determining infra-
structure and modal
investment and provisions that align
sustainable economic growth with energy usage and enlarge-
ment.

5.2. Member States must recognise their responsibility to
oversee and if necessary decide key considerations regarding
regulation, certification, harmonisation of operating standards,
safety concerns, and even basic matters affecting the evolution
of transport logistics.

5.3.
taxation
The EU must address the dysfunctional
elements within and between Member States for all transport
infrastructure and modes and seek to reduce the wide vari-
ations that exist and so facilitate the creation of a level playing
field for all transportation.

5.4.
A move towards direct charges could create a more
transparent and representative regime than is achieved by
taxation and duty alone and help apply charges most effectively
to those who will pay and benefit (2).

5.5.
EU funded research and evaluation should inform and
influence rules intended to take the application of the method
of marginal costs into consideration on a coordinated basis.
The amount of marginal costs differ between regions.

5.6.
There are many suitable local solutions to the removal
of disparities and market distortions. Inter-regional fora are

(1) Source: Eurostat.
(2) Communication from the Commission ‘A Sustainable Europe for
a Better World: A European Union Strategy for Sustainable
Development — The Commission’s proposal to the Gothenburg
European Council’, ESC opinion in elaboration.

6. Recommendations

6.1.
The ESC would wish to urge the EU-wide adoption of
taxation and charging structures that are ‘competitiveness-
enhancing’.

The ESC urges the Commission and Member States to

6.2.
provide comparative data which are currently not available.

6.3.
Taxes, which are based upon nationality (for example,
vehicle taxes), are ‘competitiveness retarding’ since increases or
decreases in these taxes by any one country hurt or benefit
only those transport firms who are nationals of the country.
Consequently, the competitive position of that country, relative
to others,
is altered. On the other hand, charges, which
embody a high degree of territoriality (for example, motorway
tolls), are ‘competitiveness-enhancing’
since increases or
decreases in these charges by any one country hurt or benefit
all transport firms, irrespective of nationality, who use the
relevant roads in that country. Consequently, the competitive
is (broadly)
that country, relative to others,
position of
unaltered.

6.4.
In order to promote the creation of a level playing
field, the ESC believes there should be a shift away from taxes
(which embody a high degree of nationality) towards charges
(which contain a high degree of territoriality).

6.5.
It is of the most fundamental concern to the ESC how
transport can make its contribution to meet the Kyoto protocol
obligations. The response of the US administration to withdraw
support for Kyoto is seen by the Committee to be less than
responsible. Harmonisation of transport-specific taxes and
charging systems should, in addition to creating a level playing
impact of
field, continue to improve the environmental
transport services what would help meet the Kyoto protocol
obligations.

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6.5.1.
In this respect, the ESC recommends the develop-
ment of a fiscal environment which facilitates investment in
research or technological innovation to reduce CO2 emissions
and the problems of traffic congestion.

At European level, the ESC recommends the express
6.5.2.
inclusion, among the thematic priorities of
the VI R &
D Framework-Programme 2002-2006, of transport related
technologies. It stresses the importance of the Galileo Pro-
gramme, for a safe, competitive and environmentally-friendly
European integrated logistics system.

6.5.3.
A harmonisation of the different taxation and charg-
ing systems should take into account environmental aspects
and address also the challenge of depleting fossil fuel stocks
and dependence on external suppliers for the EU now, and
increasingly after enlargement. Setting clear standards for all
sectors in respect of fuel consumption,
load and delivery
performance and conservation will calm feelings in the road-
haulage sector which perceives itself as the main target for
environmental reconstruction.

6.5.4.
The ESC is concerned that proposed unilateral tax-
ation, specially on CO2, in Member States will permit external
operators from countries whose standards and attitudes to
good practice fail to meet those reflected in Member States’
taxation regimes to enjoy transport cost advantages in bringing
goods to market.

Demand for transport services is relatively insensitive
6.6.
to the level of taxes and charges. Even large increases in fuel
prices have relatively little effect on quantities transported. A
structure of duties that offers incentives to ‘environmentally-

Brussels, 11 July 2001.

friendly’ driving could reduce fuel consumption without a
proportionate decrease in the miles driven.

6.7.

The Committee suggests that:

6.7.1.
The annual MV charge should discriminate between
types of vehicles according to their environmental impact and
infrastructure charge.

6.7.2.
Road charges should discriminate in favour of ‘road-
friendly’ vehicles given the fact that road maintenance expendi-
ture is often the single largest item in the road budget and
heavy vehicles inflict relatively more road damage. Replacing
the national fleet with ‘road-friendly’ air or equivalent suspen-
sion systems could increase pavement life between 15 %-
60 % (1). Price incentives could encourage the take-up of road-
friendly suspensions by haulage firms.

Although most countries differentiate fuel duties
6.8.
according to the environmental
impact of the fuel, cross-
border fuel tourism limits the scope for action for smaller
countries. As there is still limited possibility for harmonisation
in the level duties the inter-fuel differentials in duty should be
harmonised with each country setting its own benchmark level
of duty.

6.9. Modern technologies can contribute to simple and
efficient collection of charges. The ESC therefore urges the
Commission to strengthen the financial support for research
into new technological possibilities and implementation of
new methods.

(1) OECD Observer, 26 January 2001.

The President

of the Economic and Social Committee

Göke FRERICHS