'Junker' excise tax to be reduced

RIGA - The Latvian Ministry of Finance is planning to decrease the tariff on the purchase of used cars. The tax is affecting the amount of used cars bought and the amount of vehicles registered in Latvia.

The vehicle excise duty, introduced 10 months ago, is also aiding the Lithuanian economy because it is cheaper for Latvians to buy and register their vehicles in Lithuania for a two year period.

The vehicle excise duty was introduced so car buyers would purchase an automobile under 10 years old, and that in turn would reduce the number of old cars infesting Latvia's roadways. The tariff increases with each year an automobile is over the age of ten years.

Since the introduction of the tax on April 1, the sale of old and new cars has decreased along with the registering of used cars in Latvia. The vehicle excise duty states a car purchased under 10 years of age, ten lats($16.95) is to be paid for each year it is under 10 years. If a vehicle is over ten years of age, then 20 lats($33.90) needs to be paid for each year the car is over 10 years. A tax on the size of a car's engine is included in the duty. On a vehicle with an engine over 3,000 cubic centimeters, a payment of 55 santims($0.93) has to be paid for each cubic centimeter over 3000. The tax decreases on engine size as the car's motor decreases in cubic centimeters.

Ten months after the used vehicle excise duty began, it seems the government's plan of eradicating older model cars has worked, but the sale of vehicles in Latvia under two years of age has also plummeted.

Latvian Border Patrol figures show that in the space of a month, approximately 500 vehicles drive into Latvia from Lithuania that do not recross the border.

The Latvian vehicle traders association assistant director Olafs Ozols thinks that the vehicle excise duty is a good idea and that the Ministry of Transportation, the L.P.A.A. and the Ministry of Finance need to address the faults of the vehicle excise duty. Ozols believes that one tariff has to be initiated in the Baltic states so vehicle buyers do not pay a higher levy in Estonia than purchasers in Lithuania, as currently is the case.

"There are some steps that can be taken to lower the tax so used car buyers could find it cheaper to purchase a car," said Ozols. "But that needs to be addressed by the Ministry of Finance and the Ministry of Transportation."

The vehicle excise duty appears to be affecting the used car traders greatly and they have been forced to let go up to five people. Used car dealers who were transporting vehicles from Germany 15-20 times a week are now going only three to four times a week.

Valentina Vorbuola of the used car dealership Heko-Line Autotraders, said that unless the government reviews the vehicle excise duty, the poor sales of used cars will continue.

"The tax has greatly affected our business, we have seen such a sharp decline in our business and with this tax continuing we will see no improvement," said Vorbuola.

Juris Sunskis, manager of Euro-Auto, believes that while the tax is in place there is nothing anyone can do, and all the automobile traders have to keep plugging away.

"There has been a dramatic fall in the sales of new and used automobiles, but overall we have not been the only ones affected," said Sunskis. "I do not know if it is because of the tax that we had a bad sales last year or that it was just a poor sales year. Unfortunately the tax is the law and we all have to abide by it," Sunskis said.