Tax benefits on EVs taxing the national budget

Norway, which is regarded as the top country utilising electric vehicles (EVs), is running out of petrol operated vehicles to tax, thereby creating fiscal challenges for the country. 

In September, battery-powered EVs accounted for 77.5 per cent of all new cars sold in making Norway the world leader by a long way leapfrogging over the United Kingdom, where 15 per cent of new car sales were electric as of October and the US, where that number is just 2.6 per cent. Norway’s electric dream has been credited to a series of tax breaks and other financial carrots that mean brands like Tesla, which can compete on price with combustion engines. However, incentives and their success have created a unique predicament as Norway is running out of dirty cars to tax.

EVs creating hole in the budget

It is now becoming a big problem for Norway, as this is now affecting the national treasury in terms of tax collection. The current centre-left minority government in October estimated that the popularity of EVs was creating a 19.2 billion Norwegian krone (US$2.32 billion) hole in the country’s annual revenue.

While EVs might be great news for the environment, their rapid success in Norway is now forcing some serious fiscal consternation. In an attempt to claw back lost income, officials are stripping electric cars of special status, but this is sparking fierce debate and concern that the country could jeopardise its goal of selling no new cars with combustion engines by 2025.

The toll charge exemption was first to go in 2017. Now, Norway’s centre-left coalition government is considering removing a much broader list of incentives, as part of ongoing budget negotiations.

There is widespread uncertainty about which taxes will be reintroduced.

It is widely believed by the country’s car associations and environmental groups that a comeback is in the making for taxes for plug-in hybrids, as well as a tax for second-hand EV sales.There is also the possibility for a tax for ‘luxury EVs’ that cost more than 600,000 Norwegian krone (US$68,650) and the resurrection of an annual ownership tax for EVs.

Norway’s environmentalists say they are not against the idea of taxing EVs so long as taxes for fossil fuel cars stay high, too. 

However, there is the concern about the wrong taxes coming too soon, as it could cause major setbacks.

Some people believe that a tax on used electric car sales would undermine the market before it had a chance to develop, while a tax on hybrids would disadvantage drivers living in the north of the country who don’t have access to the extensive charging infrastructure that exists in the south.