In 2024, Denmark will not impose taxes on electric cars either

In the last financial agreement for 2024, there’s a modest silver lining for prospective buyers of high-end electric cars in Denmark.

The deal allocates funds to freeze the base deduction for electric cars at the 2023 level, offering a reprieve from the initially proposed tax hike. However, the relief is considered as marginal, according to calculations by the Danish Automobile Association (FDM). But despite the Finanslov is not what they wanted, electric cars are ready to explode in Denmark.

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Financial Boost for Electric Cars

A total of DKK 50 million has been earmarked for 2024, with an additional DKK 150 million in 2025 to maintain the base deduction for electric cars. This adjustment means that the tax increase, which expensive electric cars over DKK 436,000 were set to face starting in the new year, will be slightly reduced compared to the initial plan.

While electric cars priced under DKK 436,000 will continue to be exempt from taxes, those priced above DKK 450,000 were initially slated for a DKK 10,593 tax increase. With the financial agreement in place, this tax hike has now been reduced to DKK 7,593.

Consequently, buyers of pricier electric cars will save DKK 3,000 in 2024, and the tax reduction will persist in 2025, offering a saving of DKK 5,500 on electric car purchases.

Industry’s point of view

The Danish Automobile Association (FDM – Forenede Danske Motorejere) views the financial relief positively, but with a note of skepticism. “While we appreciate the allocation of funds to mitigate the upcoming tax increase for more expensive electric cars, it’s a lot of noise for very little effect,” says Ilyas Dogru, a consumer economist at FDM. The DKK 3,000 saving, he argues, is unlikely to significantly impact the sales of electric cars priced at DKK 450,000 or more.

Looking back to 2020, an agreement was reached to gradually phase in taxes on electric cars and plug-in hybrids until 2030. The financial agreement for 2024 doesn’t alter this trajectory. However, concerns loom for 2026, where a substantial tax increase for expensive electric cars could potentially stagnate sales.

FDM would have preferred a political focus on the two significant challenges facing the electric car market: the imminent substantial tax hike for more expensive electric cars starting in 2026 and the ongoing issue of the high prices of electric cars,” Dogru suggests. He proposes that the allocated DKK 200 million could have been better used to make affordable electric cars more attractive to consumers with lower car budgets.

In agreement with FDM’s assessment, Liberal Alliance’s finance spokesperson, Ole Birk Olesen, acknowledges that a DKK 3,000 tax reduction may not be a game-changer for electric car sales. However, he highlights that their contribution to the negotiations saved electric cars from a portion of the intended tax increase, and DKK 3,000 is better than nothing.

Liberal Alliance had aimed for the complete removal of registration fees for electric cars, but according to Olesen, the government was unwilling to allocate funds for this. Instead, the result was what he describes as “a bit of tidbit” amounting to DKK 200 million over the next two years.

Concerns about the future of electric car sales persist for Liberal Alliance, especially as significant tax increases are anticipated from 2026 onwards. Olesen suggests a more in-depth conversation about electric cars, proposing that it’s more reasonable to tax people based on factors such as congestion and limited road expansion rather than the cost of their cars.

In addition to allocating DKK 200 million for the base deduction in the coming years, the parties involved in the agreement also agreed to increase subsidies for several ferry connections and raise the commuting deduction for residents in outlying municipalities. The specific amounts for these measures are not outlined in the agreement.

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