Vehicle taxes vary greatly across Europe with environmental considerations playing a major role in some countries. Based on OECD data, Euronews Business looks at pre- and post-tax car prices in four different categories.
Taxes associated with the purchase, registration, and use of vehicles were an important source of income for governments. Taxes are increasingly being used to influence consumer behavior for energy and environmental considerations, particularly the move to net-zero greenhouse gas emissions in recent years.
The level and structure of taxes, which may include value added tax (VAT), sales tax, excise duties and other fees and charges, when purchasing a new car can vary significantly across Europe.
So, how does VAT on passenger cars compare across Europe? How much tax do Europeans pay when buying cars? How do pre- and post-tax car prices vary across the continent? Euronews Business takes a look.
In 2022, VAT rates on car purchases varied between EU members from 17% in Luxembourg to 27% in Hungary according to the European Automobile Manufacturers Association (ACEA).
In most EU countries, people pay 20% or 21% VAT when buying new cars. There are only six countries where the VAT rate is higher than 23%.
The VAT rate is not the main reason why car prices vary so widely before and after tax across Europe. Taxes, fees and other rewards largely cause this. Rather than just comparing VAT rates, it is useful to look at the price before tax and the final price, which includes all taxes and fees.
Based on the OECD’s 2022 Consumption Tax Trends Report, we can take a look at the prices of some typical cars, with electric, hybrid and combustion engines in four categories.
Class A specifications They are: electric motor SUV/hatchback, power 150 kW (204 hp), battery capacity 58 kWh, consumption 17 kWh/100 km, weight 1730 kg, CO2 emissions 0 g/km, battery range more than 400 km ( Volkswagen ID3 performance example).
In 2022, the A-Class car had a price of $33,000 (€31,339) before tax in the simulation. When taxes were included, the price ranged from €26,938 in France to €59,168 in Turkey.
The final price is lower than the price before tax in France and Germany
The final price was lower than the price before tax in France (26,938 euros), Luxembourg (27,732 euros) and Germany (31,295 euros), which shows the level of rewards in these three countries. In France, people paid €4,400 less than the pre-tax price when they bought a Class A car thanks to the “green bonus”.
At the top, Turkey was followed by Hungary (39,801 euros), Poland and Denmark (both 39,174 euros).
People in Norway did not pay any taxes or fees, according to the OECD report. People in the other two Nordic countries, Sweden and Iceland, paid less than 100 euros in tax.
Taxes were less than €3,000 in Lithuania, Greece, Slovenia and Switzerland when purchasing a Class A car, at €33,339 before taxes.
Taxes on a vehicle with high power and battery capacity
Power and battery capacity are higher in Category B Cars in simulation. The specifications are: Sedan electric drive, power 370 kW (496 hp), battery capacity 82 kWh, consumption 15 kWh/100 km, weight 1830 kg, CO2 emissions 0 g/km, battery range more than 400 km (ex. Tesla Model 3 Long Range Dual Motor.
When the price was €52,232 ($55,000) before tax in Class B, the final price ranged from €52,009 in France to €98,163 in Turkey. A person in Turkey had to pay a tax of €46,831 to buy this car.
In France and Luxembourg, the final price was lower than the price before tax, as both governments encouraged zero-emission vehicles.
As in Class A, Norway imposed no tax on Class B cars, and people in Iceland paid less than €1,000 in tax in the simulation.
Excluding Turkey, people in Hungary, Ireland, Poland and Denmark paid tax of more than 13,000 euros for a Class B car.
Taxes on hybrid cars
Class C specifications They are: petrol/electric hybrid sedan engines, 1.8 liter petrol engine, 121 kW (162 hp), 95-98 RON unleaded gasoline, consumption 4.5 l/100 (combined) and 53 kW (71 hp) electric motor ), Battery capacity 1.3 kWh, Weight 1800 kg, CO2 emissions 115 g/km, Battery range <10 km, NOx emissions 3 mg/km (e.g. Toyota Corolla Hybrid LE).
The pre-tax price was €21,842 ($23,000) in the simulation. In this case, the final price including all taxes ranged from €21,494 in Germany to €46,393 in Turkey.
Although the highest price was in Turkey, it was not anomalous in this model. Türkiye was closely followed by Denmark (45,633 euros) and Norway (45,062 euros). In these three countries, the tax amount was greater than the pre-tax price. This means that the final price was more than double the price before tax, indicating the level of taxation.
People in France, Iceland and Luxembourg paid lower taxes compared to other European countries in this category as well.
Taxes rise significantly on combustion engines
Category D The vehicles in the simulation consist only of those with combustion engines. Specifications They are: Pickup 4×4 with petrol engine, unleaded gasoline 95-98 RON, cylinder capacity 3.5 liters V6, power 300 kW (400 hp), consumption 12.4 l/100, CO2 emissions 296 g/km, emissions NOx 20 mg/km, weight 2200 kg; Price: $50,000 (example: Ford F-150 Ecoboost V6).
When the pre-tax price was €47,483 ($50,000) in 2022, the final price ranged from €53,289 in Switzerland to €179,297 in Turkey. There were no countries where people paid less than the pre-tax price for a Class D car.
Taxes are more than double the pre-tax price in 7 countries
Obviously, taxes were highest on vehicles with combustion engines. The tax amount was more than double the price without tax in seven out of 27 European countries.
To buy a Class D car at €47,483 before tax, the final prices people had to pay in 2022 were: €179,297 in Turkey, €146,716 in Denmark, €122,820 in the Netherlands, and €117,759 in Norway. 105,898 euros in Finland, 96,519 euros in Iceland, and 95,599 euros in France.
Aside from Sweden, where the final price was €59,354, people in the Nordic countries were at the top of the list, paying the highest price for cars with combustion engines.
Looking at the average annual tax revenue per vehicle in the main EU markets, things are largely different in 2022. Spain (€1,148) collected the least tax per vehicle while Belgium (€2,892) collected the most.
This figure was 1,625 euros in France, 1,764 euros in Germany, and 2,723 euros in Finland.
Germany collected revenues of €34.2 billion from value-added tax on car sales, service, repair and spare parts, sales and registration taxes. This figure was slightly higher than 20 billion euros in France (21.7 billion euros) and Italy (20.8 billion euros) in 2022.
Denmark, Sweden and Finland raised more than €2 billion in this category, while Greece (€1.2 billion) and Ireland (€1.5 billion) scored the lowest.
Vehicle taxes total around €400 billion in the 13 EU countries
Cars are responsible for €374.6 billion in tax revenue for the thirteen EU countries in the chart above.
In addition to sales and registration taxes, this figure includes annual property taxes and, more importantly, taxes on fuel and lubricants.
Türkiye is considered a highly anomalous country, as it relies on a special consumption tax
OECD data shows that Turkey was an outlier in vehicle taxation in all categories until 2022. The highest prices were recorded in Turkey in all four simulations. People initially had to pay a very high rate of special consumption tax (ÖTV), which ranged between 60% and 220%. Then they had to pay VAT (18%) on it.
In 2023, the minimum ÖTV increases to 80%, and VAT to 20%. So the final prices will be higher if the simulation is based on the 2023 regulations.
By July of 2023, ÖTV revenues from vehicles accounted for 10% of all taxes collected by the government. This did not include value-added tax and other fees, which shows the extent of the government’s reliance on private taxes.
Cheapest places to buy electric cars
Final prices were lowest in France and Luxembourg for both types of electric cars. The final prices were lower than the pre-tax price in both countries thanks to the bonuses. People in France and Luxembourg paid no taxes in practice, but enjoyed paying a lower rate than the pre-tax price.
People in Germany, Norway, Iceland and Sweden were also fortunate compared to other countries by paying lower taxes and fees on electric cars.
When it comes to taxation of combustion engine vehicles, the policies of France and Norway have changed. Both countries are ranked in the top seven in this category. Norway also ranked third in hybrid cars.
OECD: Taxes can help with the green transition
Globally, transport was responsible for 25% of direct CO2 emissions from fuel combustion in 2018, especially road transport according to the ITF Transport Outlook.
The OECD’s Consumption Tax Trends Report notes that “well-designed taxes can reduce pollution and greenhouse gas emissions very effectively.”
Meanwhile, in 17 OECD member countries in Europe, carbon dioxide emissions are taken directly into account to determine the level of taxes. These countries included Austria, Belgium, the Czech Republic, Denmark, Finland, France, Greece, Iceland, Ireland, Italy, Lithuania, the Netherlands, Norway, Portugal, Slovenia, Spain and Sweden.
In 2022, some European countries such as France, Germany, Italy and Sweden offered a “bonus” to buyers of selected vehicles with low or no CO2 emissions. This may be a subsidy paid by the government or local authority when you purchase the car.
“malus”, a tax, fee or surcharge imposed on vehicles with high CO2 emissions in some countries including Belgium, France, Italy and Sweden.