The Chancellor of Justice has proposed to the Riigikogu to bring the Motor Vehicle Tax Act and the Traffic Act into compliance with the Constitution, as they lack provisions that take into account cases of asset destruction or other instances of vehicles becoming unusable. Additionally, the Chancellor of Justice requests consideration of exemptions for large families and people with disabilities so that they do not have to give up an essential vehicle.

04.03.2025

The Chancellor of Justice has proposed to the Riigikogu to bring the Motor Vehicle Tax Act and the Road Traffic Act into compliance with the Constitution, as they lack provisions that take into account cases of asset destruction or other instances of vehicles becoming unusable. Additionally, the Chancellor of Justice requests consideration of exemptions for large families and people with disabilities so that they do not have to give up an essential vehicle.

The Riigikogu has full autonomy in imposing taxes and shaping the tax system. There is no universally applicable rule for assessing the fairness of the tax system. The imposition of any new state tax is an expression of the will of the democratically elected Riigikogu (majority), and no new tax is automatically unconstitutional, no matter how unpopular it may be. However, the decision-making power of the Riigikogu is not entirely unlimited: property rights, the recognition of the value of large families, support for people with disabilities, and other constitutional provisions must be taken into account. Only the Riigikogu can decide what exemptions should be applied to ensure that taxpayers are not treated unjustifiably unequally. Without necessary exemptions, a tax law may be unconstitutional.

According to the Chancellor of Justice, the Motor Vehicle Tax Act and the Road Traffic Act are not in accordance with the Constitution, as they lack provisions that consider cases of asset destruction or other instances of vehicles becoming unusable. It is not justified to charge tax for an entire tax period (a year) for a motor vehicle that has been stolen, destroyed, or otherwise lost. It is also disproportionate to charge the full registration fee if the vehicle is destroyed or stolen immediately after the fee has been paid.

The taxation of motor vehicles is based solely on the entry in the traffic register, meaning whether a person is registered as the owner (responsible user) of the vehicle on January 1. A vehicle may, for example, be destroyed (lost) at the beginning of the tax period, yet the tax must still be paid for the entire year. The tax must be paid both by those who can use their vehicle and by those who no longer have their vehicle (lost, destroyed, confiscated, etc.). In this way, taxpayers are treated equally, even though their situations differ. If the asset no longer exists, meaning the taxable object is missing, it is not reasonable to demand full tax payment for it.

In the case of asset destruction, the registration fee is not refunded. The registration fee is only refunded if the vehicle is deleted from the traffic register for export abroad. In both cases, it is technically possible to avoid taxing an asset that no longer exists: for vehicles registered in the middle of the year and for vehicles taken abroad, similar calculations are made. However, a situation has arisen where the state can impose an additional tax (a daily tax calculation is possible), but reducing the tax amount is seemingly not possible (a daily tax calculation is not legally allowed).

The Riigikogu has the option to establish a legal basis for the proportional calculation of the motor vehicle tax according to the number of days registered in the traffic register, even in cases where a car is destroyed or otherwise becomes unusable (such as theft) at the beginning or middle of the year. If daily tax calculations are deemed impossible for some reason, quarterly tax calculations could be considered. For example, heavy vehicle tax is collected on a quarterly basis.

If a motor vehicle is destroyed immediately after the registration fee is paid, not refunding the fee is clearly excessive. It would be reasonable for the state to retain an amount corresponding to the cost of the registration procedure and refund the rest of the registration fee. The registration fee (which has been referred to as a “component of the car tax”) is not a cost-based charge for the procedure itself, so the refusal to refund it cannot be justified by the argument that the person has paid the fee and received the service.

The Chancellor of Justice agrees that the fewer circumstances requiring tax recalculation exist in the law, the easier it is to administer the tax. However, administrative simplicity cannot be an end in itself that justifies everything, including unequal treatment. When imposing a tax, it is important to consider factors that ensure that the tax burden is distributed reasonably, fairly, and uniformly among taxpayers. There is no justification for imposing a property tax on those who no longer actually possess the taxable asset.

A confiscatory property tax (i.e., a situation where the owner is forced to give up taxable property because the tax is unaffordable) is unconstitutional. While the motor vehicle tax cannot be definitively classified as confiscatory (the median tax is €116, which is relatively low), many countries with long-standing car tax traditions grant tax exemptions for people with disabilities. Each country considers its own society’s needs and capabilities when introducing taxes or tax reliefs—no country is obliged to follow another’s example. However, failing to provide exemptions for large families and people with disabilities may lead to a situation where they are forced to give up a necessary vehicle due to the tax, thereby creating an unconstitutional situation. The Constitution obliges the state to take special care of large families and people with disabilities.