The cost of owning a car in Iceland will rise significantly next year, if the 2023 budget bill is passed in its current form. The bill proposes hikes in gasoline and emissions taxes as well as the general vehicle tax. A new tax will be imposed on electric cars and new road tolls will also be implemented. The green energy transition will require the Icelandic government to restructure how it taxes vehicles and fuel, the main source of funding for road and transport infrastructure.
“Goes way too far”
The hikes in fees and taxes represent a 36% increase in revenue from vehicles for the state, according to Rúnólfur Ólafsson, chairman of the Icelandic Automobile Association (FÍB). “And then this comes with new taxes on both petrol and diesel,” Rúnólfur told RÚV. “This is happening at the same time as the Minister of Infrastructure is talking about greatly increased new taxation of public use of vehicles with so-called road tolls in tunnels, over bridges, and so on.”
Public transport infrastructure is limited in Iceland, meaning that the majority of the population relies on private vehicles to access employment and services. Rúnólfur says the additional costs will hurt the most vulnerable sectors of the population. “These are hugely increased charges that are being announced in one fell swoop, and we believe that this goes way too far as it is being proposed now.”
Cost of electric vehicles to rise
The government also proposes applying a 5% minimum excise duty on all cars, meaning that a full discount will no longer be applied to electric cars. While Finance Minister Bjarni Benediktsson stated there will continue to be strong incentives to buy environmentally friendly cars, FÍB calculates that the excise duty and value-added tax will raise the cost of electric cars by ISK 300,000 [$2,150; €2,150], though the rise could be as much as ISK 1 million for some cars [$7,160; €7,160].
Iceland funds the maintenance and development of roads and infrastructure through taxation on vehicles and fuel. A notice on the budget bill states the restructuring of this taxation will be one of the biggest challenges for the treasury in the coming years.
