Lisbon, Oct. 1, 2026 (Lusa) - Phasing out ISV (vehicle tax) and reforming the IUC (annual vehicle road tax) could result in annual savings of 3.2 million litres of fuel and prevent the emission of 10,800 tonnes of carbon dioxide in Portugal, according to a study published on Thursday.
The study by the Portuguese Automobile Association (ACAP), carried out by EY, analyses the association's proposal for a reform of vehicle taxation.
The findings were presented today at the ACAP Auto'26 Forum, which is taking place in Lisbon under the theme «Driving the Future of the Car».
The study analysed the impact of a reform proposal based on three pillars: a phased abolition of the Vehicle Tax (ISV), an increase in and overhaul of the Single Road Tax (IUC), and its redistribution.
The authors point out that phasing out the ISV «represents an opportunity to modernise the Portuguese tax system, align it with European best practice and actively contribute to the green transition».
In addition to reducing fuel consumption and lowering carbon dioxide emissions, the study argues that this would bring economic and fiscal benefits.
Economically, it would boost the automotive sector and increase tax revenues, create jobs and reduce accident rates, whilst the identified fiscal benefits include greater tax justice, alignment with German and Spanish practices, and the guarantee of budgetary neutrality.
In the case of the Vehicle Tax (ISV), the proposal focuses on a cumulative annual reduction of 10% and its total abolition by 2036, whilst also proposing a gradual phasing out of the impact of engine capacity and its replacement with environmental parameters.
As for the Vehicle Tax (IUC), the proposal involves updating the bands relating to carbon dioxide emissions, fuel consumption and age, as well as gradual increases for new vehicles, in order to offset the reduction in ISV.
At the same time, it is suggested that the IUC be redistributed by offsetting the loss of ISV revenue through an increase in the IUC and by transferring IUC revenue from local authorities to the State.
Currently, the IUC Law establishes that municipalities receive the revenue generated by the IUC levied on vehicles in categories A, E, F and G, as well as 70% of the engine capacity component levied on category B vehicles.
The idea is to achieve a zero balance in these components, whilst addressing what the authors consider to be the structural problems of the vehicle fleet in Portugal: ageing and the import of second-hand vehicles.
Regarding the former, ACAP points out that, in 2024, there were 1.6 million vehicles over 20 years old on the road in Portugal, equivalent to 27% of the total, whilst regarding the latter, the average age of imported vehicles reached 8.2 years.
The import of second-hand cars has, moreover, increased over the years, rising from 10.7% of registrations in 2010 to 50.7% in 2024.
As a result, the study highlights older vehicles that do not comply with Euro 6/6d standards and points to a loss of €936,000 in environmental taxes in 2025. At the same time, the authors note that the accident rate is above the EU average.
The study also identified limitations in the scrappage scheme, noting that it fails to cover the costs of electric vehicles, limits the number of vehicles available to private individuals, restricts eligible financing options and allows for distortions through the scrapping of imported vehicles solely to obtain the incentive.
It therefore highlighted the need to redefine eligibility criteria, as well as to increase support and require information on the vehicle's origin, age and ownership.
According to the study, the car market is being renewed at a slow pace, resulting from the scrapping of increasingly older vehicles.
Between 2006 and 2024, the number of vehicles scrapped per year increased more than fivefold, rising from 20,000 to 107,000. At the same time, the average age at scrapping also rose from 15.6 to 24.7 years – an increase of 58%.
ACAP has been advocating for a review of the taxation applied to the sector, which underwent its last tax reform in 2007. Now, against a backdrop of increasing electrification of the sector in Portugal and in the face of economic, technological and environmental challenges, it believes this is the right time to bring changes to these taxes back to the table.
JO/AYLS // AYLS
Lusa
