Estonian finmin: Car tax solution a compromise between different goals

TALLINN - Estonian Minister of Finance Mart Vorklaev is to explain the principles behind a motor vehicle tax solution to the state budget control select committee of the Estonian parliament on Monday, noting that it represents a compromise between various objectives.

"The motor vehicle tax affects a large part of society, and it was necessary to find solutions that support both environmental goals and increase state budget revenues, while being feasible for our people and businesses," the finance minister said.

To ensure the tax fulfills its primary goal of making cities more human-centered and the air cleaner, a broad-based tax obligation has been designed, meaning there are few exceptions.

The tax considers the environmental impact of a vehicle, taking into account its emissions and weight. However, as people's incomes and capabilities vary, the age component of the tax plays a crucial role in making it fairer, helping individuals reduce the tax amount. The registration fee decreases for vehicles at least one year old, and the annual tax starts to decrease for vehicles five years and older.

There are three exceptions to the motor vehicle tax. Firstly, emergency vehicles are not taxed.

"Ensuring vital services and security is a priority for us, and therefore they are exempt from tax," the finance minister noted.

Secondly, vehicles specially modified for the transportation of people with disabilities or for use by them are exempt from tax.

"Since all people with disabilities, regardless of whether they own a vehicle or not, need more support in mobility, additional needs-based support measures have been developed to mitigate their tax burden, in addition to the exemption provided in the draft motor vehicle tax law," Vorklaev said.

Thirdly, vehicles belonging to consular offices and representatives of international organizations are exempt due to tax exemptions arising from international treaties.

The minister does not consider creating tax exceptions based on, for example, the number of children in a household as a good solution, as people's incomes and capabilities are very diverse. The tax has been designed so that everyone can choose a solution that is affordable for them.

 "This is also the main reason why we could not design the tax solely based on environmental impact -- it would have significantly increased the tax burden for most vehicles," Vorklaev added.

Last week, the government approved the motor vehicle tax bill and submitted it to the Riigikogu for handling. The goal of the motor vehicle tax is to reduce car dependence in cities, increase sustainable mobility, and nudge people towards more environmentally friendly vehicles.