During the last months, four European countries have introduced tax breaks for cycling to work or extended existing ones: France, Belgium, Luxembourg and Italy. This shows that the idea of rewarding sustainable commuting behaviour through fiscal incentives is gaining ground throughout the continent.

By: Holger Haubold, ECF Economic and Fiscal Policy Officer.

In Belgium, which had introduced a reimbursement scheme based on the kilometres cycled to and from work already in 1999, the amount of the tax-free reimbursement has recently been raised to 23 eurocents per kilometre. The number of employees benefiting from this scheme has increased substantially during the last years, by 30% between 2011 and 2015 alone. This means that over 400,000 Belgians, or 9% of the country’s workforce, now receive a cycling reimbursement. Together, they cycled more than 420 million kilometres in 2015 – almost three times the distance between Earth and the Sun, creating important benefits in terms of public health, air quality, CO2 emissions reductions and congestion relief, to name just a few. All this comes with a small price tag for Belgium’s public budgets – 93 million euros, or around 2% of what is lost in tax revenues per year due to the under-taxation of company cars.

This tax subsidy for the private use of company cars, estimated by the European Commission to cost 4.1 billion euros yearly and causing significant problems regarding congestion and air pollution, is actually one of the biggest obstacles to more cycling and a more sustainable mobility system in general in Belgium. Changes in the tax system will therefore have to address this issue urgently. One of the suggestions recently put on the table by the Belgian government is the creation of a so-called “mobility budget”, which employees could choose as an addition to their salary instead of a company car. While this model has shown good results in terms of modal shift away from car commuting in an earlier pilot project, the exact legal arrangements, which are currently under discussion, will decide whether it will achieve its objective of making commuting in Belgium more sustainable. To do so, the benefits of cycling to work, and especially the potential of electric cycling, should be strongly promoted and reflected in the mobility choices offered under the new model.

Belgium’s South-Eastern neighbour Luxembourg has recently undertaken a comprehensive fiscal reform and has used this occasion to introduce fiscal incentives for cycling. From now on, tax payers will be able to deduct 300 euros from their personal income tax for the purchase of a new bike or pedelec. Companies will also have the possibility to give their employees bikes for both business and private use, and contrary to company cars, this ‘benefit in kind’ is completely tax free for the employee. Furthermore, at the end of the lease the employee can receive/purchase the bike tax-free from the company, while in the case of a company car the employee would be taxed on the ‘benefit in kind’ gained by pruchasing the car below market price from the company. The taxation of company cars has been revised as well, and is now based on the fuel type and CO2 emissions of the company car in question in order to better take into account its environmental impact. However, the opportunity of overhauling the fiscal system has not been used to increase the average taxation of the private use of company cars towards its real value; on the contrary, most company cars are now taxed less than before, even if their CO2emissions are at the average level for new passenger cars in the EU. Unfortunately, this has a strong potential to diminish the overall positive effect of the fiscal reform on sustainable mobility in Luxembourg.

In 2015, France had introduced a kilometric reimbursement scheme similar to the Belgian model, however, with severe restrictions concerning the maximum yearly tax-free amount. According to French sources, a decree is currently under preparation to open up for public bodies to pay this cycling reimbursement to their employees. The tax-free payment would also be limited to 200 € per year and employee, which makes the scheme far less attractive than its Belgian counterpart. French cycling organisations, amongst which ECF member FUB, continue to advocate for abolishing the yearly limit and making the reimbursement scheme obligatory for all employers.

Finally, things are moving in a sustainable way also in Italy, where several cities are planning to use a national experimental programme for sustainable commuting to pay their citizens to cycle to work or to their university. For example, the city of Bari in Southern Italy is planning to give “mobility vouchers”to employees and students that use their bike for their daily commute. These vouchers can then be used for the purchase of a new bike or for public transport subscriptions, for example.

For more information on this topic, check our study on fiscal incentives for commuting and our recent report on incentive schemes for e-cycling.

Original Post, May 2017: https://ecf.com/news-and-events/news/tax-breaks-bike-commuters-european-trend