Denmark to reduce registration tax and increase cut-off point for cheaper vehicles

27 September 2017

Denmark is to lower the tax rate on the cheapest cars to 85%, in a move that will cost the country’s government around 600 million kroner (KR) (€80.6 million) in 2018.

The rate of tax is currently set at 105% on cars priced at 106,000Kr (€14,200) or under. However, the new 85% rate will be based on vehicles up to 185,000Kr (€24,860), according to a statement from the country’s finance minister.

The tax on more expensive cars will remain at 150% according to the proposal, which has the backing of the Danish People’s Party, the government’s main ally in parliament. The changes are expected to come into force on 3 October.

In addition to the general reduction, the existing deduction in the registration tax for the safest cars increases from the current 2,000Kr (€270) to more than 8,000Kr (€1,075) Similarly the tax surcharge for cars with poor fuel economy increases from 1,000Kr (€134) to 6,000Kr (€806), while the limit for when a car is eligible for deductions for good fuel economy increases for both petrol and diesel cars.

The proposals were first suggested in August, when the Danish government hinted that tax would be set at no more than 100% for cheaper vehicles. Tax revenue as a percentage of GDP amounted to 46.6% for Denmark in 2015, according to Organisation for Economic Cooperation and Development (OECD) data, significantly higher than Scandinavian counterparts Sweden (43.3%), and Norway (34.1%), as well as Finland (44.0%).

The move may be seen as an opportunity to reduce the cost of electric vehicles (EVs) following the removals of tax breaks on the technology, which led to EV sales in the first quarter of 2017 collapsing by more than 60%. Currently, EVs are more expensive to purchase than traditional internal combustion engine based vehicles, however Denmark, like most countries in the EU, is looking to promote greener transport and encourage drivers to make the switch.

When the proposals were first mentioned in August, it was expected that vehicle sales may stall until plans were finalised and a target date was set, as drivers wait to take advantage of price drops. According to ACEA figures, sales in the month dropped by 12.1% compared to the same month in 2016, while overall registrations for the first eight months of the year are up by 2.9%.