Carmakers should back diesel law -EU tax chief

BRUSSELS Tue May 22, 2012 6:17pm BST

European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud Algirdas Semeta addresses a news conference on energy taxation, at the EU Commission headquarters in Brussels Aril 13, 2011. REUTERS/Thierry Roge

European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud Algirdas Semeta addresses a news conference on energy taxation, at the EU Commission headquarters in Brussels Aril 13, 2011.

Credit: Reuters/Thierry Roge

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BRUSSELS (Reuters) - The European Union's tax chief wants carmakers to drop their opposition to proposals to change EU fuel taxation that are expected to halt a rise in diesel use, saying they will be given a decade to adapt engine production to a new regime.

Germany, Europe's biggest centre of car production and home to diesel-engine giant Volkswagen (VOWG_p.DE), stands to lose most from the proposal to revise the rules for minimum fuel tax levels across the European Union.

Carmakers say that, if implemented, the change will end diesel's price advantage over petrol and sap demand for vehicles that use it.

"The car lobby is resisting, making arguments this will lead to an increase of tax on diesel versus petrol," Algirdas Semeta, the European commissioner in charge of taxation policy, told Reuters in an interview on Monday.

"It (EU tax) will not lead to a dramatic change as is painted by the car industry," said the commissioner, a former Lithuanian finance minister. "The use of diesel will not reduce but stabilise.

"We propose very generous transitional periods. The directive will fully enter into force in 2023," said Semeta, adding new engines normally take five to seven years to develop.

Finance ministers from the EU's 27 countries are expected to examine the plan, drawn up by the European Commission, when they meet next month.

Semeta also outlined the advantages of the tax scheme, which he said could spur economic growth and help to tackle an imbalance in the EU refining industry.

Fuel suppliers often have to import diesel and export surplus gasoline, sometimes at a loss.

He said the proposal sought to "neutralise" tax advantages given to some fuels as well as to reflect their carbon emissions and energy content.

"We propose to neutralise the tax on various types of fuels and let them compete on their merits rather than tax subsidies."

For now, fuel is taxed on the basis of volume, and diesel is cheaper than petrol in nearly all EU states, with Britain a notable exception.

Semeta said studies by the European Commission, projecting consumption to 2030, found that diesel use would not fall, but stabilise at the level of 59 percent if the proposal became law. Otherwise, diesel use would grow to 64 percent.

Since a litre of diesel contains more energy and more carbon than a litre of gasoline, minimum tax rates per litre of diesel should eventually be higher than for gasoline.

But Semeta said if countries particularly wanted to stop diesel prices from rising, they had flexibility as many EU states taxed both diesel and gasoline at above the minimum rate.

"If member states don't want to raise the price of diesel, they could keep taxes level with where they are today, but they would have to cut the tax for petrol because this law is about fairly aligning all fuels," he said.

PAY-BACK TIME

Semeta also sought to rally support for a tax on financial transactions, a proposal drawn up by the European Commission that is strongly backed by France and Germany but opposed in equal measure by Britain.

London is concerned the levy, which Semeta said could raise 57 billion euros ($72.8 billion), will damage its financial services sector, which accounts for almost a tenth of its economy.

The economist said public support for the measure was high after banks received 4.6 trillion euros of aid throughout the financial crisis.

"Our citizens have a legitimate expectation that this amount will be paid back, sooner or later," he said. "More than two thirds of EU citizens support the proposal."

Semeta raised the prospect of widening sales tax to banking, saying the sector's exemption from the charge cost countries more than 18 billion euros in lost revenue. "This under-taxation has to be addressed."

Although the European Commission can make proposals for taxes in the EU, countries in the union are reluctant to surrender national control over such decisions.

To introduce a levy such as a tax on financial transactions across all 27 member states would require unanimous agreement. This is often impossible, which leaves the option of a smaller group going it alone with a scaled down scheme.

($1 = 0.7832 euros)

(This story was refiled to add quote in paragraph 16)

(Editing by Anthony Barker and Will Waterman)

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