In its preliminary work drafting the necessary legal bill, the ministry has presented two possible models to be in place when calculating the tax.

The first of these is more broadly based on a vehicle's environmental impact through the course of its life-cycle production, use and disposal, and the second more narrowly, focuses only on CO2 emissions while the vehicle is in use.

The planned strategy would see lower taxes levied on older cars, in order to encourage lengthier use of a vehicle through to the end of its life cycle and to make affording a car more in reach for those who otherwise may not be able to do so.

In respect of power calculations, perhaps unsurprisingly, a less powerful car would be taxed at a lower rate, on the grounds that it pollutes less.

A registration tax would also be payable on the first entry into the traffic register of a vehicle, or on the first change of ownership inside Estonia. 

The intent here would be to slow up the rate at which cars are bought and sold, as well as to favor more economical models.

The planned tax will be based on vehicle, ie. an owner of multiple cars would be taxed on each vehicle.

Minister of Finance Mart Võrklaev (Reform) says Estonia is one of the few countries where there is currently no car tax of any kind, even as the number of vehicles on the roads is constantly rising. 

Võrklaev said: "Our broader goal is to reduce car use, especially in cities, and to move towards a cleaner national vehicle fleet. Each car leaves its own footprint on the environment, so the tax will apply to all vehicles. We will not reduce the environmental impact via excise policy only; a separate tax is needed."

The annual tax on car ownership would be intended to motivate people to review the size and capacity of their fleet of cars, if they have one, and, where possible, induce them to tend towards a more environmentally friendly and less expensive car.

"Furthermore, with the annual tax, we hope to resolve the issue of unused vehicles standing in nature and in the parking lots of apartment buildings. We would like to reach such a tax model that would make people dispose of their waste in an appropriate manner," the minister went on – in other words, the tax would be levied on unused or unroadworthy cars which are in any case retained by their owner.

The exact principles of the taxation system are to be established by the Ministry of Finance, based on the feedback received on the draft development intention plan. The ministry will then produce draft bill based on this, in the fall.

The tax itself is planned to come into effect on July 1 next year, while the annual tax will be due for the first time in August 2024, for the following half-year period.

The tax covers all M1, M1G class passenger vehicles, as well as N1 and N1G category vans weighing up to 3,500 kg, plus L3e-L7e category vehicles (motorcycles, mopeds, etc.).

Heavy trucks are already covered by a separate tax.

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