Parliament Approves End to VAT Exemption for Cars Not Exclusively Used for Business ({{commentsTotal}})

The coalition today pushed through the much disputed business vehicle VAT exemption cut bill at an extraordinary sitting, 56 votes to 32.

The bill was first floated by Finance Minister Jürgen Ligi last year, as part of an attack on tax fraud and exemptions, but was shot down by then coalition partner IRL, fearing a backlash from businesses.

The changes, which will take effect December 1, will mean cars bought by companies, but also used for private trips, will no longer be exempt from all VAT. Currently when a business buys a vehicle it receives the VAT (20 percent) back from the state, but from December 1, that figure will only be 10 percent of the cost, or half the paid VAT.

Ligi told Postimees today that the current loophole allows private use to be deducted as a business expense, and that this is unfair.

The change could bring in as much as 47 million euros in 2015.

Ligi hoped to force the bill through already in 2013, and wrote the potential income into the 2014 state budget. After Parliament rejected the bill, the Cabinet had to find the missing 24 million euros, increasing dividends from state companies, selling state land, dipping into the reserves and re-evaluating expenses.