The car tax disc that is displayed in a car's windscreen is set to be scrapped and be replaced by an electronic system.
Chancellor George Osborne is set to make the announcement in the Autumn Statement, with the new electronic system expected to start from October 2014.
The system will also allow car owners to pay their tax on a monthly basis, by direct debit. The current paper discs can only be bought on either a six-monthly or 12-monthly basis.
Buying a six-month paper tax disc is currently 10% more expensive than choosing the 12-month option, but the difference is expected to be cut to just 5% with the new system.
Paying by direct debit is also expected to cost 5% more than buying a year's tax at once.
Authorities, such as the police and the DVLA, already rely on electronic means to see whether a car is taxed and insured, checking the vehicle registration against a database.
The Treasury said the plan was a sign the government was moving 'into the modern age'.