Researchers worry about government plan to levy higher tax on EVs

FINLAND is on path to become a laggard in emission reductions if the government follows through with its proposal to levy higher taxes on electric vehicles, warn researchers from VATT Institute for Economic Research and the Finnish Centre of Excellen

By: helsinkitimes.fi

Aug 20 2024
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Researchers worry about govern

FINLAND is on path to become a laggard in emission reductions if the government follows through with its proposal to levy higher taxes on electric vehicles, warn researchers from VATT Institute for Economic Research and the Finnish Centre of Excellence in Tax Systems Research (FIT).

The researchers argue that the government proposal would erode the relative benefits of electric vehicles in circumstances where the electric vehicle stock has to grow rapidly if national emission reduction targets are to be met.

“The proposed tax change can be expected to steer the development of transport emissions in the opposite direction than is required to comply with EU commitments,” they wrote.

The Finnish government decided last spring to raise taxes on fully electric and plug-in hybrid vehicles in order to generate additional tax revenue. The raise is to be implemented through the annually paid vehicle tax, which consists of the basic vehicle tax and – in the case of vehicles powered by something else than petrol – the tax on driving power.

The Ministry of Finance proposed this summer that the basic vehicle tax be raised by about 53 euros and the tax on driving power by 35 euros for electric-vehicle owners. The basic vehicle tax for plug-in hybrids would be roughly 38 euros, but the tax on driving power would change dramatically – increasing by 40 euros for petrol-driven hybrids but falling by 140 euros for diesel-driven hybrids.

Overall, the changes are expected to generate 35 million euros in tax revenue.

The public comment period for the government proposal ended on Thursday. The government is looking to present the finalised proposal to parliament in late September.

Researchers from FIT and VATT stressed in their comment that it is important to provide incentives that encourage motorists from shifting away from transport fuel toward electric vehicles.

“Electrifying the vehicle stock quickly enough will require strong incentives. Without sufficient incentives we will not reach our climate targets on time,” said Tuomas Kosonen, a research professor at VATT.

Earlier, the government scrapped an incentive designed to subsidise electric vehicle purchases.

“The proposed change in the vehicle tax, together with earlier decisions, will directly influence the purchase decisions of consumers and slow down the vehicle stock’s electrification,” said Marita Laukkanen, a research professor at VATT.

The government opted not to scrap the tax benefit designed to encourage companies to electrify their fleets of company cars.

The Finnish Information Centre of Automobile Sector has published data indicating that the number of fully electric vehicles rose above 100,000 in July, accounting for 3.6 per cent of the entire vehicle stock of Finland.

“Although the share of electric vehicles remains relatively high in Finland, the registrations of fully electric vehicles have decreased by about 30 per cent compared with the first half of last year,” said Tero Kallio, the managing director of the Association of Automobile Industry in Finland.

Forecasts concerning the development of the stock vary. The Ministry of Transport and Communications issued a rather optimistic forecast last spring, declaring that it expects the number of fully electric vehicles to soar to 600,000 by the end of the decade. VTT Technical Research Centre of Finland on Friday indicated that the forecasts should be revised down.

Aleksi Teivainen – HT