Norway's Proposed Luxury Tax for EVs Might Bring a Worldwide Trend

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Last month, electric vehicle sales in Norway reached almost 80 percent of total car sales in the country. Tesla is leading with its Model Y, but the situation could be different if the next government will impose a luxury tax on EVs. The latter has already been discussed, and it may bring an end to the popularity of some of the most expensive EVs offered in the country.
Interestingly, Tesla has two models at the top of the sales chart in Norway, the Model Y and the Model 3, and both would not be affected by the new luxury tax. The latter would only affect electric vehicles that have a price in excess of 600,000 Norwegian crowns, which is almost $69,500 according to exchange rates at the time of writing. Mind you, EVs priced at 600,000 Norwegian crowns and under will still be exempt from the tax.

The proposed luxury tax on electric vehicles in Norway is the work of several parties that have vowed to introduce it. The tax itself is a 25 percent VAT on electric vehicles that are more expensive than the specified price. According to the parties that have proposed the tax, the new measure will bring more money to state coffers.

Norway's tax breaks for electric vehicles brought month-over-month increases in electric vehicle sales, but the company's politicians explained that subsidies cannot last forever, and these get bigger with the price of the vehicle.

In other words, expensive EVs got a bigger subsidy because they were exempt from VAT, and the country is starting to notice their rise in popularity. Norway also plans to become the first country to stop selling diesel and gasoline-engine cars by 2025.

Years ahead of what other European nations are planning, the country's ambitious goal might come with the end of its zero-tax policy for electric vehicles. The end of subsidies for luxury EVs in Norway could be a big test for electric vehicles in general.

While many countries have proven that people will change their spending habits based on taxes and other costs associated with those purchases, some products still get sold despite the price hike. Tesla is in the position where it is no longer affected to the same degree by this tax, but the same cannot be said for other brands that have EVs on offer that are priced above 600,000 Norwegian crowns, as Reuters notes.

For example, cars like the Audi e-tron, e-tron GT, and e-tron Sportback, the Mercedes EQC, Porsche Taycan, Tesla Model S, and Tesla Model X would be affected by this tax. If and when that happens, customers will have a choice between a more affordable model and sticking with their decision and having to pay extra.

While introducing a 25 percent VAT on electric vehicles priced over a certain threshold might make some potential customers consider their combustion-engined equivalents, most will also take into account the rest of the taxes that that EV will spare them from paying.

I suggest keeping a close eye on Norway and its tax policies for electric vehicles, as other countries might follow in its footsteps. Countries interested in having as many electric vehicles on their roads as possible will definitely take a closer look at these policies, but it is unclear if and how they might apply similar decisions.

Norway is not the only country in the world where EVs are exempt from certain tolls or taxes, in one form or another. These subsidies will not last forever and will eventually disappear once almost everyone is driving an electric vehicle instead of a conventionally-powered model.

As you may have noticed on the Internet, some people are complaining about EVs not paying road tax, despite being heavier than a conventionally powered vehicle of a similar size. The weight aspect of the argument is true, and countries that have a road tax embedded in their fuel price also exempt EVs from paying anything due to the fact that they do not use fuel of any kind. That is not exactly fair for other road users, is it?

The Norwegian EV Association, an interest group in Norway, considers the proposed luxury tax to be “ill-timed” and that it will “ultimately slow Norway's electrification.” What is worse, in my view, is announcing discussions regarding such a tax, even if it is on luxury products, and keep mentioning it over and over again, without any legislative effect.

While the best thing for the greater good is not always in favor of all individuals, that does not mean that everyone will agree with the decision made by the authorities. Only time will tell if the proposed luxury tax was a good idea, but it will bring more money into the country's coffers.
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Editor's note:

The photo gallery shows the Tesla Model Y, the best-selling car in Norway in September 2021, for illustration purposes. It would not be affected by the proposed luxury tax.

The article was updated to clarify that vehicles priced at 600,000 Norwegian crowns and under will be exempt from the luxury tax.

About the author: Sebastian Toma
Sebastian Toma profile photo

Sebastian's love for cars began at a young age. Little did he know that a career would emerge from this passion (and that it would not, sadly, involve being a professional racecar driver). In over fourteen years, he got behind the wheel of several hundred vehicles and in the offices of the most important car publications in his homeland.
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