Vehicle registration fee has generated much less revenue than expected
Instead of the initially projected €137 million, the vehicle registration fee brought in only €64.2 million for the Estonian state in 2025 — more than 50 percent less than expected. Revenue from the annual vehicle tax, however, was close to forecasts and totaled €87 million.
The Estonian car market experienced a downturn in 2025, which the Ministry of Finance attributed to extensive advance purchases at the end of 2024, economic uncertainty, and other tax increases. By the end of the year, however, the market showed signs of gradual recovery.
According to Veiko Karu, CEO of Auto Bassadone, an automotive dealer, the car market is gradually recovering.
"Today we are roughly at the 2022 level, and we'll reach the period before the tax was introduced around 2028, when sales volumes may be similar," Karu said.
Karu added that the number of car sales and service locations in Estonia has already declined.
"This is already happening today: the number of sales outlets that used to exist all over Estonia has dropped significantly even over the course of this year. Things have become more concentrated in large centers," Karu explained.
According to Swedbank's head of private customer leasing, Karin Saar, private vehicle leasing providers observed a sales decline of a similar magnitude.
"We clearly saw consumer interest cool off, meaning volumes declined. They fell on a similar scale to the rest of the market, somewhere around 40–45 percent. The average price of a vehicle acquired through leasing was around 34,000 euros. New cars were slightly more expensive, used cars slightly cheaper," Saar said.
On January 1, 2025, Estonia introduced a motor vehicle tax aimed at steering consumers toward more environmentally friendly choices and broadening the state budget's revenue base.
Discount for families with children
The tax has two components. The first is an annual motor vehicle tax, which consists of a base amount (€50), a CO₂ component, and a weight-based component. The vehicle's age is also taken into account: vehicles aged 20 years or older are subject only to the base amount. In addition, starting in November 2025, a family allowance took effect, reducing the tax by up to €100 for each minor child.
The second component is the registration fee — a one-time charge paid when a vehicle is first registered in Estonia or upon the first change of ownership if the fee has not been paid previously. Increases in the fee are planned for 2028 and 2031.
In 2025, total revenue from the vehicle tax (the annual motor vehicle tax plus the registration fee) amounted to €151 million.
According to the analysis, the current structure of Estonia's motor vehicle tax may not be sufficient to encourage consumers to choose electric vehicles over fuel‑efficient internal combustion engine cars, as the annual tax difference is small—about €30–40. Greater differentiation is provided by the registration fee.
Although the vehicle tax generated revenue for the state budget, the decline in vehicle sales reduced value-added tax (VAT) receipts by approximately €26 million.
According to Evelyn Liivamägi, Deputy Secretary General at the Ministry of Finance, several factors affected tax revenue.
"VAT increased. That led to political messaging suggesting perhaps it should be canceled. The annual motor vehicle tax was collected very well, as expected, because people won't give up their cars if they need them. We were more optimistic about revenue from the registration fee, but uncertainty about the future of taxes in the overall economic environment still had a strong impact, and significantly less was collected than initially expected," Liivamägi said.
Signs of market recovery
According to the Ministry of Finance published report, early 2026 showed signs of improvement in the vehicle market. Based on preliminary data, registration fee revenue in the first three months of 2026 totaled €17.7 million, which is €5.8 million more than in the same period in 2025. For 2026, the ministry expects registration fee revenue of €82 million.
At the beginning of 2026, a uniform tax-free income allowance of €700 took effect in Estonia, increasing the purchasing power of many people and also having a positive impact on the vehicle market.
However, Estonia will hold parliamentary election in March 2027, and expectations surrounding the election may also affect vehicle tax revenue. One of the most popular parties in the opinion polls, Isamaa, has promised to abolish the vehicle tax.
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Editor: Toomas Pott, Märten Hallismaa, Argo Ideon
