Finmin: IMF report demonstrating need for motor vehicle tax in Estonia

TALLINN - The country report by the International Monetary Fund (IMF) demonstrates the necessity of implementing a motor vehicle tax in Estonia, according to Minister of Finance Mart Vorklaev.

In its recently published report on Estonia, the IMF has dedicated a section to the impacts of climate change, pointing out that the introduction of a vehicle tax, along with the promotion of environmentally friendly transport, would be a crucial component of a more ambitious green transition, the Ministry of Finance announced.

"As the IMF points out in its report, the number of vehicles and kilometers driven in Estonia has grown rapidly over the years, reflecting improvements in living standards and income. Although new vehicles pollute less than older ones, the emission indicator for carbon dioxide per kilometer in Estonia is still higher than the EU average, as the share of zero- and low-emission vehicles here is small," the minister of finance explained.

Transport, including fuels, accounts for the largest share of emissions outside the energy sector in Estonia. Carbon dioxide emissions in the transport sector have doubled over the last 30 years. Changes in these sectors, the taxation of polluting activities, and promotion of cleaner activities could, according to the IMF, support faster achievement of climate goals.

"One of our objectives with the vehicle tax is to gradually move towards a more environmentally friendly vehicle fleet, and although we cannot expect rapid changes here because we have to consider the capacity of society to cope with a new tax, we hope to eventually gain momentum," the finance minister emphasized.

In the European context, the car tax is considered primarily an environmental tax. Since it has not previously existed in Estonia, the country falls significantly below the EU average in terms of environmental tax collection in transport.

The IMF's report on Estonia broadly assessed the economy, budget, and financial sector and provided recommendations for implementing economic policies. Estonia is advised to strive for a balanced budget and pursue neutral fiscal policy, to help to curb inflation. At the same time, support for the most vulnerable target groups should be maintained. To do this, consolidation measures are needed, and government sector operating expenses should be cut.

Creating budget buffers is important to withstand future economic shocks. The IMF acknowledges that Estonia has made progress in improving its systems to combat money laundering and terrorist financing, but these should be further refined. The IMF continuously deems it very important that structural reforms be implemented, and recommends to carry out reforms that increase productivity and employment, and implement digital and green transitions. This helps ensure long-term and sustainable economic growth.

The IMF delegation was in Estonia from May 9 to 23 and discussed the economic situation and economic policy steps in Estonia with representatives of the government and the private sector.