BGI Consulting prepared a report for Ministry of Foreign Affairs and Ministry of Environment on the criteria of vehicle circulation tax and has formulated recommendations for possible taxation in Lithuania with the aim of using research results as a basis for the development of recommendations for amending the Law on Pollution Tax of the Republic of Lithuania. Besides the fuel excise duty and the road tax, it is a common practice in EU Member States to also apply vehicle registration and (periodical, e.g. annual) vehicle circulation taxes. The European Commission recommends the gradual elimination of vehicle registration tax and replacement of it with an annual environmental vehicle circulation tax in order to apply the Polluter Pays Principle and encourage consumers to choose a vehicle with less pollutant emissions. In accordance with 2014 data of European Automobile Manufacturers Association, vehicle circulation taxes are applied to personal passenger cars in 22 EU Member States.
For the analysis of international practice patterns, 7 EU countries were chosen: Poland, Estonia, Latvia, Sweden, Denmark, Czech Republic, and the UK. Four out of seven countries were found to apply the vehicle registration tax and five out of seven countries – vehicle circulation tax. Currently, the vehicle registration tax in Lithuania is symbolic and only covers the administrative costs. In Lithuania, the tax on pollution of vehicles used for commercial purposes can be seen as environmental vehicle circulation tax, however, its tariff is low and does not comply with the international practice. Personal cars are currently not subject to any kind of environmental circulation tax. Therefore, consumers are not encouraged to choose less polluting vehicles.
The National Reform Programme contains the EU recommendation to Lithuania to introduce the vehicle taxation. When deciding on the acquisition or renewal of the vehicle, the environmental car circulation tax differentiated by vehicle pollution parameters would be an encouragement to choose a vehicle with less pollutant emissions. One of the main goals of the vehicle taxation is to reduce air pollution. The reduction of transport-caused pollution is important in terms of both national quality of living standard and international perspective, with regard to national limit values of pollution. Taking into account the European Commission’s recommendations encouraging the elimination of the vehicle registration tax, for Lithuania, currently having no environmental registration nor car circulation tax, it is more beneficial to implement only the environmental car circulation tax by amending the Law on Pollution Tax of the Republic of Lithuania. Using the cost and benefit analysis method it was found that the best alternative is to base the tariff rates for personal passenger cars (M1) on CO2 emission and the type of fuel.