It Would Be Virtually Cost Neutral To Lower The Car Taxes In Denmark To Below Current Madness

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Whenever the issue of tax on passenger cars in Denmark comes up, those who believe in the numbers think it’s pure madness, while others simply don’t believe it. Well, now a bunch of number crunching wizards have found that most of this madness is indeed superfluous.

The Mad Tax Rules

Let’s begin by looking at the current rules in effect according to the Danish tax authorities. I know, it looks like a rant of typos, but I went through the numbers a couple of times, and they are actual real life official Danish policy (disclaimer: my own translations and calculations, as clear as mud):

Petrol and diesel passenger cars:
85% tax on the value (base price + 25% VAT) up to DKK 185,000 ($30,000) and 150% of the rest.

Electric cars:
The tax is calculated according to the general rules for passenger cars above. Of the calculated tax, 20% is paid for electric cars registered in 2016, 2017 or 2018, and then 40% in 2019, 65% by 2020, 90% by 2021 and 100% by 2022. In addition, in 2016, 2017, 2018, and 2019 a deduction of DKK 10,000 ($1,600) of the final tax will be granted.

Plug-in hybrid cars:
The tax is calculated according to the general rules for passenger cars above. In 2016, 2017, and 2018, in addition, 20% of the difference in the tax will be paid with and without recognition of the electricity consumption in fuel consumption (what does that even mean!?). The proportion of the difference then rises to 40% in 2019, 65% by 2020, 90% by 2021, and 100% by 2022. In addition, in 2016, 2017, 2018, and 2019 a deduction of DKK 10,000 ($1,600) of the final tax will be granted.

Cheap petrol car: base price $15,000. VAT: $3,750. 85% of $18,750: $15,937. Total: $34,687.
Premium petrol car: base price $60,000. VAT: $15,000. 85% of $30,000: $25,500. 150% of $30.000: $45,000. Total: $150,000.
Tesla Model 3 2019: base price $35,000 (I hope). VAT: $13,750. 85% of $48,750: $37,187. 40% of total tax of $37,187: $14,875. $1,600 deduction. Total $48,275 (as opposed to $40,837 had it been able to make it to market in 2018). Madness.

I know what you’re thinking. Why oh why are Danes not buying electric cars now before they reach the high tax? Beats me…

How The Madness Began

Henry Ford With 1921 Model T
While others designed luxury cars, Henry Ford designed a car that anyone could afford. Image from the collections of The Henry Ford and Ford Motor Company.

An old luxury tax on things like gold watches is allegedly the basis for the Danish tax on passenger cars that was introduced in 1925. It was meant to limit the import of foreign cars in order to strengthen the Danish currency and trade balance (cars were only seen as luxury items at the time, and the fact that Ford was closing in on 15 million Model T sales to ordinary working citizens didn’t seem to matter much).

The tax was progressive from 15% to 40% depending on the vehicle’s base price. In 1977, the tax reached a whopping 180% on the part of the base price above DKK 185,000 ($30,000). A premium car with a base price of $75,000 would cost $213,000 in this tax scheme, resulting in the majority of cars in the country now being low-end tiny tin cans. The high rate tax was lowered to 150% last year.

Flat tax will be virtually cost neutral

According to Børsen, new calculations from the Danish Ministry of Finance show that the financial consequence of removing the high tax part of 150% on cars will be virtually negligible.

The association of Danish motor vehicle owners (FDM) also writes about these findings in a recent article:

In connection with last year’s reduction and reorganization of registration tax, the original government initiative was a flat tax of 105%. This didn’t happen and instead the tax on the low part of the base price was lowered to 85%, and the price point were high tax kicked in [150%] was raised significantly.

The political party Liberal Alliance asked the Ministry of Finance to figure out what it would cost to replace the progressive tax scheme with a flat rate tax scheme. The answer was clear: it would cost almost nothing to remove the high tax part on cars.

If you remove the high registration tax rate of 150% and replace it with a flat tax of 85%, it will only cost society DKK 100 million ($16 million) a year. This should be seen in the light of a total government budget of over DKK 1 trillion ($160 billion) of which DKK 50 billion ($8 billion) derives from car registration taxes.

In other words: to remove the madness will leave society short of 0.2% of current car registration tax income. How? Everybody would be able buy bigger, cleaner and safer cars at a higher average price tag.

FDM believes that a long-term plan is needed, where car taxes are adjusted to benefit the individual consumer as well as society. A system where the tax is calculated based on the technical characteristics of the car rather than its value would make more sense.

And Then There Is The Problem With Electric Vehicles

High taxes are not the best way to encourage people to choose the environmentally friendly options. Torben Lund Kudsk at FDM puts it this way:

“Danish car taxes are still among the world’s highest, and they are still value-based. It prevents the Danes from choosing safe, environmentally friendly cars that match their needs. FDM calls on politicians to reconsider the need for a 150% tax — not least because the high tax in itself is an obstacle to a switch to a technically based taxation system. If we really want the Danes to choose electric and hybrid cars, the value-based tax of up to 150% is not the way forward.”

As you can imagine, I have spent a good deal of my life whining about these high taxes, with the result of most of the cars I have owned being old knackered wrecks only missing the scrapyards because they were not able to go in a straight line (I once had a Fiat 127 that could only do right turns the last days of its life, I kid you not).

DIY Conversion Is Doomed In The Land Of EV Confusion

Since I wrote about the endeavors of the first Danes to travel around the world in an electrified Nissan Qashqai, I have wondered if I should forget about taxes on new cars all together and try to convert an old classic to electric propulsion.

Here on CleanTechnica, such aspirations are highly encouraged. However, when I indulged myself a bit in the legal stuff on the subject, my dreams were shattered once again. But that’s another story you will probably deem as utter madness or simply not believe. I’ll be back with more…

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Jesper Berggreen

Jesper had his perspective on the world expanded vastly after having attended primary school in rural Africa in the early 1980s. And while educated a computer programmer and laboratory technician, working with computers and lab-robots at the institute of forensic medicine in Aarhus, Denmark, he never forgets what life is like having nothing. Thus it became obvious for him that technological advancement is necessary for the prosperity of all humankind, sharing this one vessel we call planet earth. However, technology has to be smart, clean, sustainable, widely accessible, and democratic in order to change the world for the better. Writing about clean energy, electric transportation, energy poverty, and related issues, he gets the message through to anyone who wants to know better. Jesper is founder of and a long-term investor in Tesla, Ørsted, and Vestas.

Jesper Berggreen has 243 posts and counting. See all posts by Jesper Berggreen