The car tax introduced this year has added significant extra costs to car swaps, which are common among hobby car owners.

Erkki Ots, head of Bassadone Baltic, told ERR that it is often customary for hobby cars to be swapped after two or three years of tinkering and driving. While owners may want something new, selling such vehicles outright can be difficult. Today, a substantial registration fee must be paid for both vehicles during a swap, often causing the deal to fall through.

Cars over 20 years old are typically only used in the summer, as they are unsuitable for Estonia's winters. However, swapping these cars also incurs a registration fee, which Ots described as completely unreasonable.

"If you have a hobby car in Finland, there is a special system that allows you to pay a partial car tax if you stick to a limited number of days of use and mileage," he explained. "If I have a 1960s American car with a six-liter engine, I can't even drive it in winter due to its age. Yet they slapped the full fee on these cars too."

According to Ots, an exception should be made for hobby cars, and even motor insurance data easily confirms that these vehicles are typically used only from May 1 to September 1.

Evelyn Liivamägi, deputy secretary general at the Ministry of Finance, told ERR that when people swap cars and register the change with the traffic registry, the registration fee applies if it has not yet been paid.

"The registration fee is required when a vehicle is first registered or when ownership changes hands for the first time within Estonia. It generally does not depend on how the vehicle was acquired. The fee is paid once for each vehicle," she explained.

Liivamägi added that a change of ownership does not necessarily mean a sale — it can also be a swap, a gift or another form of transfer. The only exceptions where the registration fee does not apply are when a vehicle is inherited or when it is transferred to the lessee's name at the end of a lease.

Ots: New tax having a disastrous effect on the car market

Erkki Ots said that the introduction of the car tax and registration fee has had a catastrophic impact on the entire car trade, including new car sales. He added that the argument claiming the new tax aims to bring more fuel-efficient and lower CO2 emission vehicles to Estonia is also unconvincing. "When one Estonian sells their used car to another and pays tax on it, that doesn't make the car any less polluting," he said.

"I would fully support a car tax directed at new, inefficient vehicles. If someone buys a six-liter gasoline pickup truck to drive alone around the city or a new luxury SUV with a large gasoline engine and an empty weight of 2.5 tons, that's extravagance by today's European standards. If you can afford to pay €100,000 for a car, you can afford to pay an additional €10,000 in tax," Ots explained.

Most people, however, don't buy new cars from dealerships. Instead, they want to trade in their used cars for other used vehicles that better suit their needs. "Today, they can't do that because both vehicles would be hit with such a high tax that they simply can't afford it," Ots said.

He gave an example: if someone leases a car with the expectation of trading it in for another vehicle at the end of the lease, they now face a dramatically reduced market value for their vehicle. A car once expected to be worth €8,500 might now require the owner to pay €1,000 of that amount to the state.

Used car prices have also fallen significantly due to minimal demand. Many new cars are purchased with the expectation that part of the down payment will come from the difference between the current car's remaining lease balance and its market value. "Now the state is effectively stealing that money from your pocket and all transactions have come to a halt," Ots stated. He added that the car market is a strong indicator of the economy's health and whether policy decisions have been right or wrong.

He also rejected the claim that the new taxation policy supports environmental goals. "If we trade in a five-year-old pickup truck and a five-year-old minivan because we need different vehicles and end up paying €5,000 in registration fees to the state for each, how does that make the cars cleaner or reduce CO2 emissions?" he asked.

According to Ots, April was the first month where the drop in car sales fell below 50 percent; in previous months, the decline had been 60 percent. He argued that the government's revenue projections for the car tax were misguided. Moreover, the state failed to account for the value-added tax lost from all the transactions that didn't happen, the bankruptcies caused by the sector's downturn, the lost labor taxes and the resulting snowball effect.

Recent data shows that 4,055 new vehicles were registered in Lithuania in April — a 50 percent increase from April last year. Latvia registered 2,071 new vehicles, a 38 percent increase, while Estonia registered just 1,075 vehicles, a 38 percent decrease year-over-year.

"The Estonian car market used to be about 30 percent larger than Latvia's. Now it's 50 percent smaller," Ots noted. He also pointed out that Lithuania and Latvia have a higher share of electric and plug-in hybrid vehicles than Estonia because they have functioning support schemes. Estonia's subsidy fund ran out in January and no new funding is expected soon.

And with a VAT hike still ahead, Ots said he sees nothing positive on the horizon unless some poor decisions are reversed. Until then, Estonia's car market is destined to stagnate for years.

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