Time for Norway to tax luxury electric cars, IMF economists say

Automotive Industry

Source: Automotive News Europe, 2021-06-10

Norway should begin taxing high-end battery-powered cars to lower the overall cost of its generous electric vehicle incentives, economists at the International Monetary Fund (IMF) said in a working paper.

If implemented, Norway could see taxes levied for the first time on electric cars from luxury automakers such as Porsche, Jaguar and Mercedes-Benz, as well as high-end Tesla and Audi models.

Seeking to become the first nation to end the sale of gasoline and diesel cars by 2025, oil-producing Norway currently exempts all fully electric vehicles from the taxes imposed on internal combustion engines.

As a result, 54% of all new cars sold in Norway last year were powered by batteries only, a global record, up from 42% in 2019 and a mere 1% a decade ago.

But the policy comes at a substantial cost, estimated by the ruling centre-right coalition at 19.2bn Norwegian crowns ($2.32bn) in lost state revenue last year, or some 250,000 crowns on average for each new electric car sold.

The more expensive a car is, the bigger the sales tax and other levies foregone by the state, thus giving the biggest implied subsidies to high-income households while also raising the cost per t of carbon emissions saved, the paper found.

"Norway could improve the targeting of its tax incentives to increase their environmental impact," the paper published on 10 June by three IMF Economists concluded. 

One such targeted change could be to offer subsidies to actually scrap petrol and diesel cars when replaced by EVs, the economists said, adding that Norway should also consider raising the taxes imposed on polluting cars.

The proposals could resonate well with Norway's centre-left opposition, which is favored to win power in national elections due in September 2021.

While supporting the goal of selling only EVs by 2025, Norway's Labor and other centre-left parties all want to start imposing sales taxes on the portion of a car's cost that exceeds 600,000 crowns.

For comparison, the least expensive model of an electric Porsche costs 758,000 crowns, while the top model starts at 1.7m crowns, according to the automaker's website.

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