Danish government ministers are secretly convening to discuss a significant overhaul of the nation’s car taxes, aiming to shift the tax burden from vehicle purchase to vehicle usage. This initiative, outlined in the government’s platform, seeks to maintain low taxes on electric car purchases while increasing taxes on car usage.

The proposed restructuring involves completely exempting electric vehicles from registration tax, which is currently being phased in. To offset the revenue loss, the government plans to implement an increased annual ownership tax on new electric cars, averaging DKK 2,550, and a new road tax for all car owners, including foreign drivers, of up to DKK 145 per month, both fully implemented by 2031. This model aligns with proposals from the car industry organizations, DI Bilbranchen and Mobility Denmark.

The meetings, held within the government’s Green Committee, involve key ministers, including the Minister of Finance and leaders from the other government parties. The discussions are kept confidential to avoid influencing car buyers’ behavior, as the potential for lower purchase prices could lead to a slowdown in car sales. The intention is to move taxation away from the initial purchase and toward the ongoing use of vehicles.

The road tax and increased ownership tax could be phased in starting from 2028, with considerations to base the ownership tax on the car’s weight and the road tax on factors like congestion. There is also a proposal to remove the general electricity tax to balance the social impact of the restructuring.

A less extensive model under consideration would only eliminate the registration tax increase on electric cars after 2025, necessitating a smaller increase in ownership and road taxes. However, this limited approach would not significantly reduce administrative burdens or boost the labor supply. The full removal of the registration tax could lead to savings for buyers of expensive electric cars, potentially creating a social imbalance, which could be addressed by removing the electricity tax or implementing a progressive weight-based ownership tax.

Overall, the comprehensive restructuring aims to reduce administrative employees, increase the labor supply by up to 2,600 full-time employees, and address issues related to the current registration tax system. The existing system taxes new technology and doesn’t account for improvements in road safety and environmental protection. It also relies on loan financing for the registration tax.

Regardless of the chosen model, existing car owners are likely to face increased ongoing taxes and a decrease in the value of their used cars. However, cheaper new electric vehicles would also make replacement vehicles more affordable.