Finnish vehicle tax increase plan criticized for undermining electric vehicle goals

The Finnish government’s plan to increase vehicle taxes on fully electric vehicles and plug-in hybrids contradicts the country’s EU commitments and government program, according to researchers from the Government Institute for Economic Research (VATT) and the Tax Research Unit (FIT). In a recent FIT publication, researchers Tuomas Kosonen, Marita Laukkanen, Kimmo Palanne, and Anna Sahari argue that raising the vehicle tax will diminish the relative advantage of electric driving. Achieving emissions targets would require significant growth in the electric vehicle fleet.

The government program states that it will continue actions to reduce transportation emissions without increasing everyday costs, such as developing gas and electric vehicle charging networks and facilitating changes in fuel types, particularly for heavy traffic, as well as implementing tax brackets for vehicle fuels. The Ministry of Finance plans to increase the vehicle tax by approximately €35 million by 2026, mainly targeting electric cars and plug-in hybrids.

Prime Minister Petteri Orpo’s administration has already decided to lower fuel taxes and distribution obligations, as well as to eliminate subsidies for acquiring electric vehicles. Researchers note that these decisions also hinder the electrification of the vehicle fleet. According to the Finnish Transport and Communications Agency (Traficom), about half of road transport emissions come from passenger cars.

The share of new electric vehicles has begun to decline this year. By the end of June, 91.2% of the registered passenger cars in use were neither fully electric nor plug-in hybrids. Kosonen emphasizes that substantial incentives are essential for the fleet to electrify quickly enough to meet climate targets. The consultation period regarding the proposed tax increase closed on Thursday, with the final government proposal expected to be submitted to Parliament by the end of September.