Estonia expecting EUR 230 ml in revenue from car tax in 1st year

TALLINN – Presenting the planned motor vehicle tax on Monday, Estonia's Minister of Finance Mart Vorklaev said that the government expects revenue inflow from the tax to total 230 million euros in the first full year of the implementation of the tax in 2025. 

According to the minister, the main purpose of the tax is to reduce the environmental impact of transport and motorization, as well as the disposal of junk vehicles. The goal is to slow down motorization by 1 to 3 percent compared to the present.

The minister said the amount of the tax to be paid will depend on the environmental impact of the vehicle. The logic behind this is simple: the greater the vehicle's environmental impact, the more polluting and the heavier it is, the higher the tax, Vorklaev said in a press release. He explained that this is mainly true for the registration fee, while the increase in the annual tax will be less steep.

One of the biggest changes compared to the document of legislative intent is that the registration fee will only be payable when a vehicle is registered in Estonia for the first time. Transfers of ownership within Estonia will not be subject to tax.

"This is indirectly the lever by which to influence Estonia's future car fleet and make it more environmentally friendly. By waiving the registration fee on transactions within Estonia, we hope to motivate people to give up their older and more polluting vehicles," the minister said. The registration fee for brand new vehicles meanwhile is designed so that a certain carbon dioxide reading and weight of the vehicle will cause the fee to increase exponentially.

The design of the tax is based on the principle that it should be simple, with a broad base and few exceptions to avoid manipulation. The tax will not apply to emergency vehicles used by the rescue service, the ambulance service, the police and the border guard, prisons, the Ministry of the Interior and the Tax and Customs Board, as well as to motor vehicles adapted for disabled people. By 2025, when the car tax will come into force, the Ministry of Social Affairs will also devise additional needs-based support measures to mitigate the impact of the tax on people with special needs. 

The tax would consist of two parts: a one-off registration fee to be paid when the vehicle is first registered in Estonia, and an annual tax. The registration fee will apply to passenger cars and vans, while the annual tax will also apply to motorcycles and all-terrain vehicles. Tractors and agricultural machinery will not be taxed.

Both the registration fee and the annual tax will be made up of a base rate and an amount depending on carbon dioxide emissions, whereas in the case of passenger cars the weight of the vehicle will also be taken into account. For non-electric passenger cars, the weight multiplier will be applied to vehicles weighing more than 2,000 kilograms, for electric cars the threshold will be 2,400 kilograms. No weight multiplier will apply to vans. The registration fee for all-electric passenger cars will consist only of the base rate and the weight multiplier, the registration fee for all-electric vans will consist of only a 300-euro base rate and the annual tax will be fixed at 30 euros. 

An age multiplier will apply to the vehicles of natural persons, which will reduce the registration fee and annual tax in correlation with the age of the vehicle. The registration fee and the tax will decrease smoothly for vehicles between five and 14 years old, reaching 10 percent of the tax for a new vehicle for a vehicle 14 years old and zero for a 20-year-old vehicle. The age multiplier does not apply to vehicles belonging to legal persons.

According to calculations by the Ministry of Finance, for a 2019 Porsche Cayenne, for example, the annual tax would be 1,064 euros and the registration fee 16,565 euros, while the annual tax for a 2019 Skoda Octavia would be 50 euros, meaning only the base rate, and the fee for the first registration would be 885 euros. For lighter electric cars, the costs will be lower. For example, for a 2021 Nissan Leaf the registration fee would be 300 euros and the annual tax 50 euros. The electric Porsche Taycan, which is much heavier, would be subject to a registration fee of 2,200 euros and an annual tax of 242 euros.

The annual vehicle tax must be paid in one installment, generally by Oct. 1.

The tax will start to apply to vehicles with suspended registration a year later, from 2026, in order to give owners enough time to delete end-of-life and "phantom" vehicles from the register. The Ministry of Climate will come up with the necessary solutions for this.

In mid-July, the Ministry of Finance forwarded to other ministries and stakeholders a document of legislative intent proposing to impose a vehicle tax on most motor vehicles in Estonia. According to the original plan, the motor vehicle tax was supposed to come into effect on July 1, 2024, but during the budget talks the governing coalition decided to postpone it to the beginning of 2025.