At 4%, Italy’s EV uptake is one of the lowest in Europe and has been so for years. However, this might start to change. We would be wrong to think that the country has entered the era of battery electric vehicles (BEVs), but the recently approved budget law has put into place a promising reform regarding salary cars (company cars obtained as a benefit in kind).
Until a few weeks ago, Italy had a taxation system that made almost no distinction between an electric car and a petrol or diesel car emitting up to 160 gr CO2 per km. But now this law has been adjusted to favour cleaner technologies by taxing them differently.
The new rules aren’t perfect. The tax burden is now dependent on the type of technology (rather bizarre, for a government that believes in “technology neutrality”) and not on emissions. As a result, BEVs are incentivised with a low tax of 10%, but PHEVs also get a tax of 20% despite not being a clean technology. Even worse, to all internal combustion vehicles the same level of taxation is applied (50%) regardless of whether it is a small FIAT Panda or a high-end SUV. This brings the paradox that cars above 190 g CO2/km are now getting a 10% tax rebate compared to the previous law.
There are many inconsistencies, but the overall result of the new legislation is to significantly raise the tax burden on more than 80% of Italy's annual registered salary cars, which are petrol and (still largely) diesel cars, while the ICE vehicles that will enjoy an unjustified tax rebate are only about 3%. This new law also significantly lowers taxes on electric cars, thus creating a gap (and a fiscal advantage) that can steer the market. In Italy, 40% of all new car registrations are of company cars with half of these being salary cars.
The taxation of salary cars is just one piece of broader legislation regarding corporate fleets that should be reformed. Tax parameters on depreciation write-offs, as well as those on the VAT deduction, do not reward cleaner technologies at all, continuing to provide tax advantages for the purchase and use of emissive and polluting vehicles. Even more importantly, and with a view to the whole market, registration taxes are far below those of other European countries. This needs to be addressed.
Italy is one of the leading countries pushing back against the EU’s law that requires new cars sold after 2035 to be zero carbon emissions. The issue of 2035 has become part of the European political arena and risks undermining and derailing Europe’s climate ambition. Yet, Italy’s tweak to company car taxation shows that climate wins are possible.
