Dealers: Car tax scrapping may lead to more uncertainty
The idea floated in the coalition to abolish the car tax raises questions among car sales companies: The slump caused by the tax that came into force at the beginning of the year has not really been overcome, but now the confusion makes potential buyers once again postpone changing their cars.
On Wednesday, the Eesti 200 chair and education minister Kristina Kallas announced her party is to propose to Prime Minister Kristen Michal in the course of the autumn's state budget negotiations to abolish the car tax, calling it a failed tax.
Michal in turn said that Eesti 200's proposal will certainly be discussed, given the announcement that state finances are in better shape than previously thought.
These developments have caused bewilderment among car dealers, who have already been heavily battered by the sharp fall in sales this year following the tax coming into effect at in January.
Leino Luik, head of sales and marketing at United Motors, told ERR that if the car tax is to be abolished, the debate should not be presented to the public ahead of a decision being made and acted on. But now, a great deal of confusion has been created by throwing the possibility into the air, Luik said, since it is not even clear whether the talk is about abolishing the car tax or the registration fee.
"What effect this news will now have on the car market in this confusing way – most likely some group will now wait to see what happens next. Those who planned to buy a car stopped, thinking maybe the tax will disappear. In the context of the car market this is rather discouraging news," Luik said.
Car dealers Amserv Auto board member Margus Nõmmik agreed, saying it is difficult to tell whether this is pre-election propaganda or if the coalition is serious about the move, and if it is, the policy could cause issues of its own, since the scrapping would not come into effect immediately.
Were the idea were to come to pass, it would once again lead many private individuals to postpone changing their cars and extend existing leasing contracts. At the same time, the local car fleet would age further.
Nõmmik recalled that the introduction of the car tax and the registration fee handed the sector a major setback and pushed it to the brink of crisis.
"First of all there was a lengthy mess about whether the car tax would come and in what form, then at the end of last year it led to a boom, now a complete crisis, and now the mess is starting up again. If this [car tax abolition] can become a reality in 2027, then what about 2026?" he asked, predicting that in such a case, next year would also be very difficult for car dealers.
Car sales have not recovered from
Nõmmik said that car sales had not recovered after the new taxes came into force at the start of the year; compared with last year's figures the drop has been 40 percent, he said. The potential scrapping of the car tax may push the uncertainty even further, he went on.
While a luxury car buyer makes their purchases regardless of taxes, the registration fee most affects the price of universal vehicles essential for large families.
Nõmmik mentioned an exception with electric and hybrid cars, whose registration fees and annual taxes are relatively small. Nonetheless, the uncertain situation may serve to heighten people's hesitation about whether it is worth changing cars now.
Luik pointed out that if next year's state budget does not provide for car tax revenues, while it is unclear whether the talk is about the registration fee or the car tax, then the question arises about those people who have paid the high registration fee throughout this year, while another problem concerns cars already stockpiled in warehouses.
"There are two categories of cars in the warehouses: For some of them the registration fee has already been paid, while others not yet been registered with the fee paid. This creates a side issue of confusion that must be resolved. This has probably not yet been discussed," Luik went on.
The United Motors representative added that this whole issue seems to be related to local elections and is sowing confusion in the marketplace.
"In the long term it would not be bad if this idea were to be implemented, but this is not how such things should be done in today's climate. This did not make the car buying environment more stable, but even more unstable, although it is already extremely fragile," Luik continued.
The hot potato will again be tossed from hand to hand
Nõmmik also noted that car dealers had expected that after last year's year-end boom this year would be tougher, but they hoped that the second, third and fourth quarters would be brighter than the first. Unfortunately, uncertainty continues to reign, he said.
"Companies buy according to needs; this mainly affects private individuals, for whom sales have come to a halt in the entire car market across Estonia. The decline is across all regions, there are no exceptions," Nõmmik went on.
Nõmmik added that while, so far, car dealers have thought that this "hot potato" had finally been rolled away, as people had gradually become accustomed to the situation, now the car tax issue is rising to prominence again and the hot potato will once again be tossed from hand to hand.
According to the Estonian Association of Car Sales and Service Companies (AMTEL), sales of new passenger cars grew strongly in July in both Latvia and Lithuania, whereas in Estonia the market, which had shown signs of recovery in previous months, suffered a sharp decline in July.
AMTEL pointed out as a reason the VAT increase and the holiday season; a total of 1,106 new passenger cars were sold in July – 40 percent fewer than in the same month in 2024.
The smallest annual decline in July was seen in the plug-in hybrid category at 3.4 percent, electric car sales fell by 18 percent, petrol car sales by 49 percent, and diesel car sales suffered a drop as high as 60 percent.
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Editor: Karin Koppel, Andrew Whyte
