Alan Vaht: Decision whether to keep Estonia's car tax must come soon
Car dealers are facing a second straight year of turmoil due to political confusion over the car tax — first during its rollout, now amid talk of repeal, writes Alan Vaht.
First, car dealers were hit hard during the preparation phase of the car tax last year, as consumer uncertainty led to a drop in sales. In the first seven months of 2024, car sales in Estonia fell by 14 percent.
When the law was passed at the end of July 2024 and its implementation was set for the beginning of 2025, sales figures began to rise again toward the end of the year, even reaching record levels.
However, it was clear in advance that the start of 2025 would be extremely difficult for car sales. In the first months of the year, sales plummeted by more than 60 percent. Over the seven-month period, sales remain down by 40 percent compared to the previous year. The increase in value-added tax that took effect in July delivered an additional blow.
The record-breaking results at the end of last year have not been enough to offset this year's decline. While car sales rose by 4,775 vehicles during the last four months of 2024 compared with the same period the previous year, sales in the first seven months of 2025 have dropped by 6,776 vehicles compared with the same period in 2023 (2023 figures are used here for a fair comparison).
Looking at the past 12 months, car sales in Estonia are down by more than 2,000 vehicles. Based on the average annual sales volume from 2020 to 2023 (21,366 cars), this represents a decline of 9.4 percent.
Deeper decline still to come?
Over the past week, members of the government have floated the idea of possibly canceling the car tax. This sows confusion among both consumers and car dealers. As long as there is no clarity or specificity regarding the car tax, uncertainty will persist — and, in fact, continue to grow.
This means that even those who were already planning to buy a car are now postponing their decision indefinitely. There is a significant risk that the steepest drop in car sales is still ahead.
The government must make a prompt decision about the future of the car tax. The public needs a clear and unequivocal announcement stating whether the tax will be canceled, when exactly that would happen, whether it will be applied retroactively and whether the annual motor vehicle tax will be abolished alongside the registration tax.
Without clear answers to these questions, consumer confidence, and car sales, will not recover.
Aim of the tax confusing
Although the need to introduce a car tax was justified on environmental grounds, the draft legislation never clearly defined what specific environmental goal it aimed to achieve, nor how the revenue from the tax would be used to meet that goal.
One positive development, however, is that consumer awareness of vehicle carbon emissions has increased and more buyers are opting for lower-emission and environmentally friendlier vehicles. The biggest problem lies in the government's erratic policymaking: first, a car tax is introduced, and then its cancellation is already under discussion.
It is clear that the government created confusion both during the preparation of the car tax and now, as it debates whether to scrap it. The greatest harm has fallen on car dealers, who have been facing difficulties since the beginning of 2024.
If the car tax is ultimately repealed, it must be done retroactively for everyone from the moment the tax was enacted. Otherwise, consumers who paid the registration tax would find themselves at a disadvantage when selling their vehicles. On the other hand, if the government decides to keep the tax, it must communicate this quickly and unambiguously.
What is certain is that the government's inconsistent policy has left consumers in the dark and placed car dealers in a very difficult position. Delaying clarity on the car tax will only deepen the uncertainty.
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Editor: Marcus Turovski
