Estonian ministry: Impact of car tax on low wage earners needs to be examined in-depth

  • 2023-08-22
  • BNS/TBT Staff

TALLINN – The impact of the planned motor vehicle tax on lower-income households and people living in rural areas, as well as how it would affect Estonian businesses, must be analyzed more thoroughly when the tax bill is prepared, Estonia's Minister of Economic Affairs and Information Technology Tiit Riisalo says.

The Ministry of Economic Affairs and Communications gave its nod to the document of legislative intent concerning the motor vehicle tax, prepared by the Ministry of Finance, but made several proposals with regard to the planned tax.

In a letter to Minister of Finance Mart Vorklaev, the minister of economic affairs and IT points out that other tax changes -- VAT, income tax -- must definitely be taken into account in the impact analysis.

"All the changes mentioned tend to make the situation more difficult for households with lower incomes," Riisalo said, adding that special attention should be paid to ensuring that the coping of people with special needs and their access to services are not impaired.

In addition to the assessment of the effects on individuals, in the opinion of the minister of economic affairs and IT, the impacts of the tax on companies must also be assessed more thoroughly, including the impacts on their cost level and changes in the competitive situation compared to neighboring countries.

According to Riisalo, additional analysis is also needed on how the motor vehicle tax will affect areas where there is no satisfactory public transport services and how it will affect the opportunities of the people living in such areas to be in employment and reconcile work and family life, as well as the availability of services.

The minister emphasizes that it is not possible to change consumer behavior with a single tax change, but other solutions must also be used for this. In particular, solutions need to be found at the national level to simultaneously promote less polluting alternatives, such as public transport, electric cars, bike paths, rather than just taxing existing solutions. 

The minister of economic affairs and IT also believes that the system should send a clear signal that electric vehicles will not be exempt from taxes and charges in the future. Since the reduction in excise revenue from fossil automotive fuels will need to be made up for, Riisalo believes that it makes sense to make the system such right away that it takes account of future trends.

"Where there is a justification for preferring electric vehicles when it comes to registration, then in terms of the annual fee, there rather is not. In terms of the impact of the use of fuel, electric vehicles are preferred, but other environmental impacts are also associated with them, meaning that people should be directed to abandon the use of a personal car if possible," the minister noted.

In order to reduce the administrative burden, the Ministry of Economic Affairs and Communications proposes to move the payment deadline for the new tax to a later date from the Feb. 15 deadline put forward by the Ministry of Finance. In particular, the ministry recommends taking into account the deadlines for submitting income tax returns and the payout of refunds, so that, like the land tax, the motor vehicle tax could also be paid using one's income tax refund.

In mid-July, the Ministry of Finance put on the approvals round a document of legislative intent for the introduction of a motor vehicle tax that most vehicles in Estonia would be subject to. According to the plan, the motor vehicle tax would come into force on July 1, 2024 and the annual tax would have to be paid for the first time in August 2024 for half a year.