Sweden Proposes Higher Diesel And Vehicle Taxes

by Ulrika Lomas, Tax-News.com, Brussels

13 March 2009

The Swedish government has announced that the tax on diesel will be increased by SEK0.40 (USD0.4) per litre and new green cars will be made exempt from vehicle tax for their first five years under a bold plan to cut the country's carbon emissions by 40% over the next decade.

The proposals are part of the government’s climate bill which was presented on March 11. The Federation of Swedish Farmers (LRF) called the tax rise a "declaration of war" and said that the impact of higher fuel costs would be severe on the Swedish agricultural sector.

The government will provide SEK300mn (USD34mn) per year towards energy efficiency in 2010-2014. It is hoped that the climate bill will cut carbon emissions 40% by 2020. By then, half of Sweden's energy will come from renewable sources. Ten years later, it is hoped that Sweden's fleet of vehicles will no longer depend on fossil fuels.

In order to reach the environmental goals in the climate bill, the government presented several measures to help reduce emissions.

To encourage more people to drive environmentally friendly cars, the government suggests that new green cars be exempt from vehicle tax for the first five years. The amendment should come into force on January 1, 2010, but be effective retroactively and apply to cars taken into service from July 1, 2009 onwards. The suggestion includes company cars or other vehicles that are bought by businesses.

The carbon dioxide component of vehicle tax would be raised from SEK15 to SEK20, which means that from 2011 and onwards the tax would be raised by SEK5 for each gram of carbon dioxide a car emits.

The energy tax on diesel would be raised in two stages by a total of SEK0.40 per litre. A first increase of SEK0.20 would be made on January 1, 2011, and a second increase of SEK 0.20 on January 1, 2013. The vehicle tax for heavy trucks and buses would be decreased in order to compensate for this.

The Federation of Swedish Farmers (LRF) however, is critical of the proposed rise in the diesel tax. Lars-Göran Petersson, chairman of the LRF stated:

“With this proposal, the tax burden on agriculture, forestry and horticulture will increase by over one billion crowns (USD114m). It is of course totally unacceptable and a declaration of war against the green industries.”

The Environmental minister Andreas Carlgren responded to the criticism:

“Fossil energy is not the future for Sweden and the agriculture sector will, on the contrary, be the big winners in the changeover to everything that is green, environmentally friendly and sustainable. Moreover, we will inform everyone about the rules well in advance so that everyone affected can have several years to implement the changeover.”

The climate bill will be sent to the Parliament in the week beginning March 16.

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