It was reported that under the proposed law, approved by the cabinet last week, monthly taxes on corporate cars will rise from 1% to 1.5% of the list price. The law is likely to come into effect in March unless derailed by the opposition.
It is estimated that the new law could cost an individual an additional €100 per month on a €40,000 car.
The new tax comes as the German car manufacturers' association, VDA, predicts a bleak outlook for next year and warned it could add to the domestic problem.
It forecasts about 3.3 million cars will be sold in Germany in 2003, just above the anticipated 3.23 million for this year, which was will be the third successive year of declining German car sales.
The VDA said: 'Despite the uncertainty which is the dominating feature of the national economy as a whole and given that the general mood has deteriorated further following the latest policy decisions by the coalition government, the situation on this key industry may still be regarded as remarkably stable.
'Many of the fiscal measures proposed by the federal government, have, however, noticeably impaired the psychological mood.'
It said passenger car demand from inside Germany has been deteriorating for the past three years, adding that for the first 10 months of the year sales were 4% down from the same period last year.