Chamber of Commerce and Industry opposes car tax, citing member survey

A highway just outside Tallinn.
A highway just outside Tallinn. Source: ERR

In a letter to Minister of Finance Mart Võrklaev (Reform), the Estonian Chamber of Commerce and Industry (ECCI) said that its members do not support the introduction of a car tax. However, if the car tax is introduced, it could be collected through motor insurance and the money earmarked for the maintenance of Estonia's roads.

In the letter, Mait Palts, CEO of the Estonian Chamber of Commerce and Industry (ECCI), told Võrklaev in the letter, that a survey of 3,600 ECCI companies had shown that 73 percent of respondents were opposed to the introduction of a car tax.

The respondents pointed out that a type of motor vehicle taxation already exists in the form of excise duties on motor fuels, and that it is very much in line with the "polluter pays" principle.

In addition, according to Palts, companies said they were unclear as to the purpose of the motor vehicle tax as outlined in the draft bill proposal.

"At the moment, it seems that the main aim of introducing the new tax is to raise around €120 million for the state budget, however, environmental objectives remain in the background," Palts said.

Palts criticized finance minister Mart Võrklaev for lacking the necessary analytical studies of the potential impact of the car tax and also asked a series of questions regarding the objectives and expected results of its introduction.

"The draft bill states that the introduction of the car tax will reduce the volume of cars in Estonia by one to two percent. However, it remains unclear whether this reduction will take place within, say, one or ten years. For the other targets, the expected outcomes are not specified. It is also not clear which vehicles it aims to reduce [the number of] – older ones, newer ones, those on the road etc... There are no figures for instance on how much the implementation of a vehicle tax will reduce CO2 emissions and how much the use of more environmentally-friendly vehicles will increase. If this were an environmental tax, it would be fundamental to describe these kinds of targets," Palts wrote.

According to Palts, the introduction of a car tax is not inevitable and the argument that other countries have a similar tax, while Estonia does not, cannot be taken seriously.

In his view, it is also possible to collect additional tax revenue for the state budget through other means.

"We have received feedback from a number of associations and businesses, saying that if there is to be a motor vehicle tax, it should be a targeted tax aimed at the maintenance and development of road infrastructure or at least at promoting less polluting transport options. Thus, the additional tax revenue from the car tax ought to provide more funding for road infrastructure and not for general public expenditure. If the aim is to raise additional money to cover other justifiable expenditure, then other more appropriate solutions should also be sought, in the framework of VAT or income tax for example," said Palts.

Car tax could be paid through motor insurance.

Palts added, that if the Ministry of Finance continues to consider the introduction of a vehicle tax to be necessary, it should only be imposed only on those vehicles registered in the Estonian road register, which are in active use. In other words, those vehicles with valid motor insurance.

The ECCI also asked the minister to consider the possibility of being paid as a component of motor insurance.

This would mean insurers adding the corresponding amount of tax to insurance premiums, collecting this amount and then passing it on to the state.

 "If an individual does not pay the insurer the required amount, they will not get motor insurance. This solution would ensure that individuals are motivated to pay the motor vehicle tax on time and would not lead to high costs for administering the tax," the letter said.


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Editor: Michael Cole

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