Abstract:

The registration tax on new passenger cars in Turkey has a strong impact on consumer purchase behavior and vehicle market structure by effectively limiting 96% of the fleet to engines of less than 1.6l displacement. This paper provides an overview of the current passenger car (Özel Tüketim Vergisi) ÖTV scheme in Turkey, illustrates alternative approaches introduced in other countries, and develops a scenario for how the Turkish government could modify the current passenger car ÖTV scheme by adding a CO2 component. The alternative ÖTV scenario outlined in this paper demonstrates how it would be possible to modify the current ÖTV scheme by adding a CO2 component, thereby providing an incentive for consumers to opt for vehicles with lower emission levels. An important aspect of the analysis was to ensure tax budget neutrality from a government perspective and to avoid any sudden major market distortions. It is important to emphasize that the scenario provided in this paper is only one possible alternative for a revised ÖTV system. Applying a demand-price elasticity function, it is estimated that the one-year effect of transitioning to a ÖTV system that accounts for CO2 emission levels using the coefficients suggested in this paper would be a fleet-wide CO2 reduction of about 1.5 g/km for new passenger cars.