Car tax could be divided into two components

Cars. Source: Siim Lõvi/ERR

With the proposed introduction of a new car tax, the new ruling government coalition hopes to raise €120 million a year for the national budget. The tax could be divided into two components. While the specifics are still to be decided, the first part could be payable at the point when a car is purchased, with second paid annually and calculated according to vehicle emission levels and value.

The new car tax is due to come into force in Estonia in July 2024. Incoming Minister of Finance Mart Võrklaev (Reform) told ETV show "Aktuaalne kaamera," that initial estimates suggest it may bring as much as €120 million to the state budget and could be split into two components.

"One part of the calculation concerns the CO2 allocation. That is, that more economical cars would pay less, average cars a bit more and those, which pollute more, pay more," said Võrklaev.

"The second component could involve bringing electric cars into play. While they are perhaps at the more expensive end of the spectrum and produce no pollution, they are nevertheless more luxurious. (So, this would mean) bringing in a price or value component. Exactly how that will work, we still have to work out," he said.

According to Võrklaev, the car tax could be divided into two parts. One part would be payable upon purchasing a car for instance, with the second coming from an annual tax paid on top of that.

"Obviously, it will be something like an annual tax, or perhaps a CO2-based tax, which will be paid on an annual basis.  But then maybe the value component could be in the form of a one-off (payment)," said Võrklaev.

Deputy Secretary General for Financial and Tax Policy at the Ministry of Finance Evelyn Liivamägi, said, that as far as possible, the car tax would be automated. However, earlier analyses have shown that incomplete data in the traffic register could provide an obstacle.

"Whether(or not) all the cars in the traffic register actually exist and are being driven. Whether (or not) all the data needed to calculate the tax, is available for each car. This has been one of those situations, where we don't have complete confidence that all the data is correct," he explained.

SDE leader and new Minister of the Interior Lauri Läänemets said, that a system should be implemented, which would not overburden those with lower incomes or people living in rural areas.

"It should certainly nudge the whole of society towards having less-polluting cars. However, we know that a person who doesn't have a lot of money can't buy a new car. So maybe we have to take that into account. Whether we should put some kind of coefficient in there, or some sort of regional perspective, or something else. That is a matter for deliberation. Or indeed, (if we should) really put significantly more money into public transport," Läänemets said.

Eesti 200 leader Lauri Hussar said, that the car tax would not make cars become an unaffordable commodity.

"It is certainly not the kind of tax whereby, at some point when people need a car, it will remove their possibility of owning one. Everything still has to stay within reason," he said.

Both Läänemets and Võrklaev said there would be no increase in fuel excise duty on top of the car tax.

"We haven't discussed changes to the fuel excise separately. Decisions on fuel excise duties have been made. The current understanding, or at least what we have taken into account, is, that we will go along with the decisions that have been made. We have not discussed any further increase in excise duties," said Võrklaev.


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Editor: Michael Cole

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