More than 40 billion euros annually: the big business of car taxes

PalmaThe list of direct and indirect taxes that drivers have to face to use their vehicle is long. Expenses that must be added to the significant capital investment in the purchase process and subsequent maintenance of the vehicle, and which we will analyze individually below.

Registration tax

The registration tax is paid by all new vehicles based on their CO₂ emissions. After several parliamentary debates, until the end of the year, all vehicles with CO₂ emissions below 144 g/km will be exempt from this tax – which represented revenue of 616 million euros for the State Treasury in 2019 – and from then on, the price of the tax will vary according to the car's emissions. 

All vehicles that homologate emissions between 145 and 191 g/km must pay 4.75% of the vehicle's value, those that homologate between 192 and 239 g/km must pay 9.75%, and those that exceed the threshold of 250 g/km of CO₂ must pay 14.75%. The majority of new cars sold in Spain homologate emissions that place them in the first bracket, which can increase the price by approximately 1,000 euros per vehicle with a price of 20,000 euros before taxes.

VAT

Practically all new products sold in Spain must pay VAT (Value Added Tax), which is taxed at 21% for cars. This tax generates the most wealth for the State Treasury, as it represented an income of 4,877 million euros in 2019.

If we buy a used vehicle from a private individual, we will be obliged to pay the property transfer tax, provided that this vehicle is less than 10 years old. This amount can vary by region, model, and year of purchase. Unlike VAT, which feeds the Spanish Tax Agency, this property transfer tax is collected directly by each autonomous community, and it represented a total income of approximately 533 million euros during 2019.

If we opt to acquire a new vehicle through renting or leasing we will not be exempt from paying the corresponding VAT, as each monthly installment already includes the corresponding 21% VAT.

Municipal tax on motor vehicles

Although the registration tax, VAT, or property transfer tax are only paid once when acquiring a new vehicle, there are other taxes that we will continue to pay annually throughout the life of our vehicle. The municipal tax on motor vehicles (IVTM) is an example of a tax that every vehicle owner pays to their municipality and which represented approximately 2,800 million euros in revenue for town councils throughout the State, accounting for 4.5% of the annual revenue of Spanish municipalities.

The final amount to be paid varies depending on the municipality, since, although the same concept (CVF or fiscal horsepower) is always calculated, the payment brackets based on power depend on each town council. For example, in Barcelona, vehicles up to 8 CVF pay 25.24 euros annually, those from 8 to 11.99 CVF – the most common – pay 68.16 euros, those from 12 to 15.99 CVF pay 143.88 euros, those from 16 to 19.99 CVF pay 179.22 euros, and those over 20 CVF pay 224 euros annually. In the case of electric cars, most town councils offer them a discount of up to 75% on the tax, but in some towns these exceptions only last for a specific period of four or five years.

Taxes on fuels

The vast majority of vehicles that circulate daily in the Balearic Islands have to fill their tanks with fossil fuels to function. Since we have already analyzed the taxes we pay when filling the tank in other reports, at this point we will limit ourselves to pointing out that practically 50% of the price of a liter of gasoline or diesel are taxes collected by the state administration through the special hydrocarbon tax (IEH) and VAT. During 2019, the Spanish state collected more than 21,515 million euros thanks to fuel taxes, and it should be noted that this amount will presumably increase in the not-too-distant future with the increase in diesel taxes.

ITV

From four years of age, all vehicles must undergo periodic inspections of their state of conservation and maintenance, that is, they must pass the popular ITV or vehicle technical inspection. Although this inspection is not a direct tax, it is taxed with 21% VAT, and in addition to this tax, the DGT also charges a fee of 4.14 euros to record the vehicle registration. The DGT collects approximately 80 million euros each year thanks to this fee.

Tax on insurance premiums

This 2021 the general State budgets have approved an increase in the tax on insurance premiums, which has gone from 6% to 8% and has affected the most contracted types of insurance: those for vehicles and homes. It will mean an increase in revenue of more than 450 million annually for the State treasury. In practical terms, this will mean an increase of between 8 and 10 euros for every driver who takes out or renews their insurance.

CO₂ Tax 

This new tax, which only Catalan drivers pay, is specifically aimed at vehicles with emissions of more than 120 grams of CO₂ per kilometer, and in the case of vans it will be from 160 grams per kilometer. This threshold will vary for next year, as then vehicles exceeding 95 grams of CO₂ per kilometer will have to pay it. For practical purposes, it will mean an expense of between 8 and 18 euros for passenger cars and between 8 and 16 euros annually for motorcycles, pending future tax increases.

And what about electric vehicles?

At this point we can confirm that zero-emission electric vehicles enjoy various tax benefits (registration tax, tax on motor vehicles, CO₂ tax...), but they are in no way exempt from paying for the electricity they use to charge their batteries. In addition to the price of electricity and contracted power, the electricity tax must be added, which has a surcharge of 5.122% and to which VAT must then be added.