Estonian finmin on car tax: Every additional euro helps state budget

TALLINN - Commenting on the Estonian government's decision on Thursday to approve the car tax bill, Finance Minister Mart Vorklaev said that the state budget is in a difficult state and every additional euro helps to fill it.

"We have done serious work on the motor vehicle tax for half a year, met with interest groups and partners. It has been quite a challenge to find solutions that would support environmental goals, bring more money into the state budget and be entirely manageable for our people and companies. Many thanks to all supporters and contributors," Vorklaev said.

He added that the main purpose of the motor vehicle tax is still to reduce car use, especially in cities, to increase economical mobility and to direct people to more environmentally friendly vehicles.

"The Estonian car fleet is almost the most polluting and oldest in Europe in terms of CO2 emissions. If the average age of cars in the EU is 12 years, it is 17 years in Estonia. According to new passenger car registrations, as of 2022, the most polluting cars were bought in the European Union namely in Estonia. In addition, we have a higher number of vehicles per person than the regional average," the finance minister said.

In addition, as a member of the EU, Estonia has the obligation to fulfill the environmental goals set for the countries.

"If we want to implement green and mobility reforms, make our cities more people-centric and the air cleaner, motor vehicle tax is one of the important steps to achieve this. Every tax brings money to the state budget, from which to finance important expenses for the state. The state budget is in a big deficit and right now every additional euro helps, because we urgently need to increase investments in roads and public transport, among other things," Vorklaev said.

The motor vehicle tax will consist of two parts. The first part is an annual tax paid by the vehicle owner for each vehicle registered in the traffic register. The tax rate for passenger cars will comprise a base amount, a carbon dioxide emissions component, and a gross vehicle weight component.

The second part is a vehicle registration fee, payable prior to the registration of cars and vans in the traffic register. This registration fee aims to influence future car purchase decisions. The formula for the registration fee will have a larger carbon dioxide component to encourage the purchase of vehicles with lower emissions. The amount of the registration fee will also be affected by the age of the vehicle. The age reduction decreases linearly each year until 15 years have passed since the vehicle's initial registration, after which the age coefficient is 0.20.

The tax will make the acquisition and ownership of cars 5-15 percent more expensive than currently. The specific change for a car owner will depend on the type of vehicle owned or planned to be purchased. More polluting and heavier cars will be subject to a higher tax burden. The tax burden decreases as the vehicle ages.

The motor vehicle tax will be collected by the Tax and Customs Board. The registration fee will be collected by the Transport Administration and must be paid before making an entry to the vehicle registrer. The Tax and Customs Board will develop a new motor vehicle tax register in the taxpayers' register. The Transport Administration will make the necessary changes in the traffic register database. Emergency vehicles, vehicles intended for use by people with disabilities, and vehicles of foreign representations, according to international agreements, are exempt from the motor vehicle tax and registration fee.