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Finance Ministry working group proposes higher fuel taxes

The working group recommends Finland shift focus from car tax to fuel tax in order to achieve carbon emissions targets.

Lahden moottoritien juhannusruuhka 2020
The increase in fuel tax would be offset by a reduction in the annual vehicle tax rate. Image: Ilkka Klemola / Yle

A working group established by the Ministry of Finance to consider transport taxation reforms has recommended that an increase in fuel tax is the most effective means of reducing carbon emissions.

Finland's government has set a goal of becoming carbon neutral by 2035.

The working group's report said that a car tax, which is paid when motorists purchase a car, and an annual vehicle tax provide less incentive for motorists to reduce emissions.

For this reason, the working group recommended that Finland shift the focus of taxation from vehicle tax to fuel tax, while ensuring that transport tax revenue remains unchanged. This would mean a reduction in the annual vehicle tax rate in line with reducing emissions.

However, the price of petrol would increase by about 12 cents per litre and the price of diesel by 13.5 cents per litre.

"Emissions should be reduced because the fuel tax has a greater impact on consumers’ fuel consumption decisions than the vehicle tax, and the behavioural effects are targeted at those motorists with the greatest emission reduction potential," the working group's report noted.

The report added that, in the short term, the fuel tax increase would reduce emissions, especially as hybrid and electric cars become more common. In the longer term, the change will affect not only transport issues but may also have an influence on people's choice of residence.

The reduction in vehicle tax would compensate for the increase in fuel tax, and therefore household spending would not increase by much, the report said. However, this would depend on the household's amount of fuel consumption.

Furthermore, the working group suggested reducing the car tax rate on electric cars, which would encourage consumers to purchase electric cars. However, the annual vehicle tax on electric cars should increase so that tax revenue would remain the same.

A report published last year by a Ministry of Transport and Communications working group said that Finland needs 700,000 electric cars in order to achieve that 2035 carbon neutral goal.

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