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Car tax bill goes for its first reading

Cars in Tallinn.
Cars in Tallinn. Source: Siim Lõvi/ERR

The Finance Committee of the Riigikogu discussed the car tax bill and decided to send it to the plenary sitting on February 14.

The Motor Vehicle Tax Bill (364 SE), initiated by the government, provides for the introduction of a motor vehicle tax from 2025.

The tax will consist of two parts. The first part will be paid annually by motor vehicle owners on vehicles registered in the motor register. The motor vehicle tax rate on passenger cars will be made up of the base component, the specific CO2 emissions component and the gross vehicle weight component. The second part will be the motor vehicle registration fee, which will be paid before the first-time registration of passenger cars and vans in the motor register.

Chair of the finance committee, Annely Akkermann (Reform), said that the aim of the motor vehicle tax was to curb the increasing motorization and gradually make the Estonian car fleet more sustainable. "The implementation of the bill will also have an important impact on improving the state of public finances to cover increased defense spending," Akkermann explained.

The motor vehicle tax is expected to contribute €236 million per year to the state budget in the first full year of the implementation of the tax.

Akkermann added that the tax was aimed at making a more environmentally friendly choice when buying a new vehicle. The purpose of the motor vehicle tax is not to remove old vehicles from the road, and it supports the consumption of old cars until the end of product life.

The tax will make the purchase and owning of passenger cars 5–15 percent more expensive in comparison to today. The specific change for car owners will depend on the type of car they own or plan to buy. The tax burden on more polluting and heavier cars will be higher. As the vehicle gets older, the tax burden will become lower.

Member of the finance committee, Aivar Kokk (Isamaa), thinks that the introduction of motor vehicle tax is unjustified. "The motor vehicle tax reduces people's economic security and the competitiveness of businesses. Introducing a new tax in the context of an economic downturn is not the right move, and it will not help make the economy grow," Kokk said. He added that a car tax was not the right way to raise the revenues of the treasury.

According to the bill, the motor vehicle tax will be collected by the Tax and Customs Board. The registration fee will be collected by the Transport Administration and it will be paid before the making of register entry on the motor vehicle, and be a precondition for making of entry.

The Tax and Customs Board will develop a new motor vehicle tax registry under the register of taxable persons. The Transport Administration will make the relevant amendments in the database of the motor register. The alarm vehicles, the vehicles rebuilt to accommodate people with disabilities and, on the basis of international agreements, the vehicles of foreign missions will be exempt from the motor vehicle tax and registration fee.

Minister of Finance Mart Võrklaev (Reform) and the officials of the ministry gave explanations about the tax at the sitting of the finance committee.

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Editor: Kristina Kersa

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