Why is the Idea of Electric Cars so Taxing?

Why is the idea of electric cars so taxing?
Why is the idea of electric cars so taxing?

As we covered in one of our earlier posts the idea for electric vehicles has been around for nearly 100 years although there has been limited progress prior to the last decade. When you consider that the more traditional petrol and diesel powered vehicles cause harm to the environment, use up vital natural resources, can be expensive to maintain and are dominated by the cost of oil, surely there must be a reason why electric cars have not taken off? There are many conspiracy theories and ideas as to why the electric car market has yet to take off, all of which ultimately boil down to money and government budgets. So why exactly have electric cars failed to take off as yet?

Government budgets

When you consider that the UK government, as an example, earns billions upon billions of pounds a year in taxation on petrol and diesel it is not difficult to see why there has been some apparent unease at the introduction of electric cars. Literally overnight governments around the world could see billions upon billions of pounds wiped off their annual budgets forcing them to find new ways to tax the public and businesses to make up for potential shortfalls.

Tax on petrol and diesel

The beauty about the tax the government introduced on petrol and diesel in the UK is the fact that it is a percentage of the overall cost of fuel rather than a set figure. This has proven to be a very lucrative strategy for the UK government in particular, which has one of the highest percentage tax rates on fuel in the world, with the price of oil powering over $100 a barrel just a few months ago.

Despite numerous complaints and demonstrations from the UK public and those in the UK business arena, the UK government has been unwilling to give back any significant tax income gained from this particular source. So how will the authorities tax electric power for your electric car?

Tax on your electric car

While obviously there is a VAT element to be paid on any vehicle you acquire, governments around the world have been pushed into a corner by the "green movement" and forced to give away significant tax rebates to those acquiring more environmentally friendly cars. However, at this moment in time the overall loss of tax income is relatively small when you consider the number of electric vehicles in mass production, although it is sure to increase over time.

As a consequence we are unlikely to see any significant long-term tax incentives to go "green" with regards to your choice of vehicle. This is likely to be slowly phased out by the UK authorities who will not wish to attract attention to the matter.

Taxing your electric power

The fact that many drivers will be recharging their electric vehicles in the future, using their home power supply, is something which the UK government will need to address in order to maintain an ongoing increase in taxation income. Even though the authorities recently introduced VAT on utility bills such as gas, electric and water there will need to be a total revamp of the electric car taxation system as and when it becomes mainstream.

The very fact that electric cars are significantly more economical than your traditional petrol and diesel vehicles will ultimately lead to a reduction in fuel related tax income. Whether we see the introduction of electric car only power points around the country, such as garages and supermarkets for example, where the tax take on the "fuel supply" will be significantly higher than your traditional electric supply remains to be seen.

Road tax

Again, the UK authorities in particular have made substantial mileage out of electric cars, attempting to attract more users to this mode of transport via the road tax system. More economical and environmentally friendly cars are currently attracting a lower level of road tax with the cost of road tax for larger petrol and diesel fuelled vehicles having increased substantially in recent times.

As we suggested with the tax on fuel, whether this be petrol, diesel or electric, the UK government will at some stage need to rebalance the situation with a likely increase in electric car road tax as and when these vehicles become more popular. They will no doubt argue that the introduction of new power supplies, new regulations and the maintenance of roads have "forced their hand" but ultimately they will be looking to replace like-for-like taxation income.

The Green Revolution

The last few years have seen a significant push for recycling and modes of transport which are more environmentally friendly and cheaper to run. Even though the UK government, and other governments around the world, have invested billions upon billions of pounds in the "green revolution" there is a feeling that taxpayers are being tempted into to this new revolution only to be hit by increasing taxes in the future.

One example of this particular type of government policy is the recycling of waste which was introduced as a way for taxpayers to reduce their local council taxes and help the environment. Now that the vast majority of local councils, consumers and businesses around the UK have embraced the fashion for recycling, we are starting to see introduction of on the spot fines for those who do not "recycle enough".

The bottom line

The bottom line is that the UK government, and all governments around the world, receive a substantial income from oil, petrol and diesel related activities. The introduction of electric cars has the potential to wipe out the income from petrol and diesel related taxation for all governments, forcing them to replace these with other taxation income streams. Electric cars are seen to be both environmentally friendly and also highly efficient so no doubt the government of the day will argue that substantial savings should be enjoyed by consumers, businesses and the government alike.

Conclusion

There is no doubt that the potential wipeout of significant income streams for the UK government, and other governments around the world, has been one major factor in the relatively slow development of the electric vehicle market. Until the authorities work out a way to replace these like-for-like tax income losses it is unlikely we will see an immediate uplift in the promotion or the uptake of electric vehicles.

As ever, everything comes down to money and the ever increasing tax load on UK consumers and businesses!