Vehicle registration fee has generated much less revenue than expected
Instead of the initially projected €137 million, the vehicle registration fee brought in only €64.2 million for the Estonian state in 2025 — more than 50 percent less than expected. Revenue from the annual vehicle tax, however, was close to forecasts and totaled €87 million.
The Estonian car market experienced a downturn in 2025, which the Ministry of Finance attributed to extensive advance purchases at the end of 2024, economic uncertainty, and other tax increases. By the end of the year, however, the market showed signs of gradual recovery.
On January 1, 2025, Estonia introduced a motor vehicle tax aimed at steering consumers toward more environmentally friendly choices and broadening the state budget's revenue base.
Discount for families with children
The tax has two components. The first is an annual motor vehicle tax, which consists of a base amount (€50), a CO₂ component, and a weight-based component. The vehicle's age is also taken into account: vehicles aged 20 years or older are subject only to the base amount. In addition, starting in November 2025, a family allowance took effect, reducing the tax by up to €100 for each minor child.
The second component is the registration fee — a one-time charge paid when a vehicle is first registered in Estonia or upon the first change of ownership if the fee has not been paid previously. Increases in the fee are planned for 2028 and 2031.
In 2025, total revenue from the vehicle tax (the annual motor vehicle tax plus the registration fee) amounted to €151 million.
According to the analysis, the current structure of Estonia's motor vehicle tax may not be sufficient to encourage consumers to choose electric vehicles over fuel‑efficient internal combustion engine cars, as the annual tax difference is small—about €30–40. Greater differentiation is provided by the registration fee.
Although the vehicle tax generated revenue for the state budget, the decline in vehicle sales reduced value-added tax (VAT) receipts by approximately €26 million.
Signs of market recovery
According to the Ministry of Finance published report, early 2026 showed signs of improvement in the vehicle market. Based on preliminary data, registration fee revenue in the first three months of 2026 totaled €17.7 million, which is €5.8 million more than in the same period in 2025. For 2026, the ministry expects registration fee revenue of €82 million.
At the beginning of 2026, a uniform tax-free income allowance of €700 took effect in Estonia, increasing the purchasing power of many people and also having a positive impact on the vehicle market.
However, Estonia will hold parliamentary election in March 2027, and expectations surrounding the election may also affect vehicle tax revenue. One of the most popular parties in the opinion polls, Isamaa, has promised to abolish the vehicle tax.
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Editor: Argo Ideon
Source: Ministry of Finance
