Beware the Sales Tax

Even in the US, the sales tax varies from state to state. This is why carmakers' websites in the US state list the MSRP, or the Manufacturer's Suggested Retail Price, as "net", or before any taxes are applied. In other countries, where generally the sales tax is uniform throughout the country, the price listed on websites may include the sales tax. The difference can be staggering.

One extreme case is the Netherlands, where car sales are subject not only to 19% VAT (value added tax), but to "BPM", an additional "car tax" that until 2008 was as high as 45.2% of the net MSRP. Ouch! After purchase, you are charged a road tax which depends on the car's weight, and can amount to a few hundred Euro per year. And still the Dutch buy and drive all those cars, despite their outstanding public transportation.

Because VAT and BPM was the same for all cars, nobody even bothered to post the pre-tax price of any car, since it was easy enough to figure yourself, and anyway it wasn't the "real" purchase price. All that is changing, now that the Dutch government is morphing the BPM car tax to an at-purchase carbon tax that depends on the carbon dioxide emissions ("Polluter Pays"). Hybrid cars get serious tax discounts, and filterless diesel-run vehicles get a hefty surcharge; these numbers can run in the thousands of Euro. (The road tax will also be carbon-dependent, and after 2012 it morphs into a "kilometer tax" where the per-kilometer rate depends on carbon emissions).

Because the new tax scheme is being phased gradually during 2010-2013, the BPM/carbon tax is currently figured using a totally bewildering algorithm. CelloMom admits to being completely befuddled, and has never yet arrived at the correct total price, working from the pre-tax price. Lucky for us, MSRP in the Netherlands are now listed with and without the various taxes, so price lists always include a column with the pre-tax price, called the "Net Catalog Price", or netto catalogusprijs.

 

All those car-related taxes paid by the Dutch are actually put to good use by the quaintly named Ministry of Transportation and Water Management, which is responsible for the nation's physical infrastructure. Firstly, the country (which is as much as 20ft below sea level) has to be kept dry. The old windmills have been replaced by a network of pumps, carefully managed to remove just enough, but not too much, water from the land. Dutch roads are excellent - poorly maintained roads are expensive to users. Their engineers build beautiful bridges; any upgrades happen at an absolute minimum disruption to traffic during construction: overtime is expensive, but commuter congestion is even more expensive. Their waterways are integral to the logistics serving much of Western Europe. And now they are embarking on a huge project to strengthen the country's dikes and sea walls, to protect the low country against the seawater whose predicted rise is attributed to the carbon dioxide that we are all pumping into the atmosphere.

The new tax scheme, based on the "Polluter Pays" principle, is already starting to prompt systemic changes: Research has shown that the Dutch are responding to the incentives and buying more fuel-efficient cars. Because other EU countries are implementing similar incentives, manufacturers are responding by offering models with smaller engines, turbocharged to maintain power, which makes the engines burn even cleaner. It's a start.