Major leasing firms in Estonia not overly concerned about planned car tax

Traffic in Tallinn. Cars purchased on lease are as often as not in these darker color schemes.
Traffic in Tallinn. Cars purchased on lease are as often as not in these darker color schemes. Source: Ken Mürk/ERR

A car tax planned for Estonia is not likely to cause to much concern to leasing firms, ERR reports, since it will be borne by the car user, meaning contracts will probably not need to be changed.

The volume of cars on lease may see a slight, but not substantial fall.

The Reform-Eesti 200-SDE coalition announced as it was coming into office that along with tax hikes, it would be introducing a vehicle tax, though the precise form this will take has not been outlined yet.

The only clearly stated aspect so far has been that it should lead to €120 million in tax revenue, the coalition said.

ETV news show "Aktuaalne kaamera" (AK) also reported Tuesday that less than a quarter of all cars on the road in Estonia and which were registered in the past year would be exempt from the tax, in other words, it is likely to affect the bulk of newly-registered cars, based on what is known.

The Transport Authority (Transpordiamet), a state body, has additionally said that a one-off fee of up to €2,000 should be paid for newly-registered cars, while an annual tax of up to €180 and in proportion to the vehicle's emissions will be put in place.

Leasing firms have already written into their contracts that the lessee must pay all taxes, payments and state fees relating to a vehicle, Andrus Soodla, head of leasing at Luminor bank, told ERR. This would mean that any new car tax introduced into Estonia will not necessitate altered contracts on the part of the leasing firms.

The development also would not significantly increase the administrative costs incurred by leasing companies, Soodla said.  Luminor ensures that customers comply with their tax liabilities in any case, he added.

SEB, one of the largest banks in Estonia, also takes the view that the lessor should not have additional direct concerns relating to the proposed car tax. "When introducing a tax on the use of a vehicle, it can be assumed that the rules will be similar to those used in road insurance, namely they are the responsibility of the liable car; so this does not concern the lessor. In other words, making changes to the leasing contract when it is introduced will not be needed," Rein Karofeld, head of SEB leasing told ERR.

Additionally, leasing companies believe the car tax paid upon initial registration of a car could be added to the asking price of said motor, while pursuant to this, for example, in respect of leasing, this cost could be postponed to the leasing payment period. Soodla pointed out a parallel with a situation where, when leasing a new car, the winter tires that are included in the deal, regardless of the time of year it is made, are added to the overall car price and should get paid for in a timely fashion, as with everything else pertaining to the vehicle.

Effects on new sales

The representatives of the leasing companies that ERR spoke to were unable to say exactly what the effects of the new tax might be on the leasing market overall, but at the same time, it seems likely that there will be a bigger wave of purchases seen on the car market ahead of the tax requirement coming into effect.

Thereafter, there will follow somewhat of a quieter period, as overall tax hikes will tend to diminish purchase and use of any taxed goods.

A spokesperson for Estonian bank LHV said nothing dramatic is forecast.

LHV leasing manager Erki Link said: "Based on what the government coalition has communicated so far, we are not expecting a significant drop in demand for a leased product. The need for transport will not disappear simply with the introduction of a tax. In the event that the tax collected during vehicle registration will constitute a significant component of the entire tax package, we can expect a short-term rise in demand, in which the vehicle exchange plan planned for the near future will be brought forward, in order to minimize tax costs."

Rein Karofeld at SEB says his firm, too, is not too concerned about the future, in regard to the planned taxed. "Leasing is mostly used in the purchase of new vehicles, and despite the fact that even without the car tax, the rise in prices of new cars has been approximately 5-15 percent per year, in recent years, this has not proved an obstacle to the leasing market remaining at the same level, or even growing."

Andrus Soodla at Luminor added that although the car tax alone might not exert a major impact on the leasing market, the rises in the price of cars and in interest rates when combined have already started to negatively affect the leasing market. According to Soodla, it was a common situation for many years that a third of the new cars sold were purchased there and then, while the remaining two thirds were leased.  This proportion now is around 50:50, he said.

Evelin Kivilo, of Swedbank's leasing arm, which has the largest portfolio in Estonia, said that she could not comment on the potential effects of the proposed car tax ahead of its being clarified and entering into effect.


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Editor: Andrew Whyte, Huko Aaspõllu

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