Estonia to hike excise tax on cars

TALLINN - The Estonian government, to the dismay of many political parties, has agreed to raise the excise tax on cars beginning in 1999.

According to the motor vehicle excise tax law, cars are taxed according to their age and size of the engine.

For example, the current excise tax on a 10-year-old American car worth 55,000 kroons ($3,900) is 3,700 kroons. When the new excise tax comes into effect, the tax on that same car will be 33,000 kroons.

Many of the parties say the tax hike is unneccesary because its purpose is not clear. Tallinn already has a tax on fuel and all cars registered in the city are additionally taxed for this purpose, critics say. That may soon expand to all of Estonia.

The government has also planned to raise fuel prices for several years. This year, the tax makes 2.5 kroons per liter of petrol and next year it will be 3 kroons. One liter of petrol costs approximately 6.80 kroons in Estonia.

If the purpose of the amendment is to cut consumption, then it is a direct threat to the car companies. The turnovers of the companies selling and leasing cars have decreased tremendously since last autumn when the leasing interests increased by 10 percent to 20 percent and it became almost impossible for a client to lease used cars.

The purpose of the law may also be to decrease the imports of secondhand cars because people would then start buying secondhand cars from the local market, where excise tax is not charged. According to statistics, 40 percent of cars imported last year were new and most of the cars registered in Estonia have an engine smaller than 2,000 cubic centimeters. This, according to the Ministry of Finance, shows that Estonia is favoring imports of new and environmentally friendly small cars.

In addition, the Ministry of Finance has also proposed raising taxes on company cars that are used for private purposes. According to the specialists, the general rise related to cars may in its turn bring along a rise in car insurance by one-third.