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Explained: Denmark's crazy car registration tax

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Explained: Denmark's crazy car registration tax
The 180 percent registration tax dates back to 1977. Photo: Colourbox
13:57 CET+01:00
As part of its 2016 budget, the Danish government reduced the limit for registration tax on new vehicle purchases from 180 to 150 percent. The Local takes a closer look at why buying a car in Denmark is so expensive and what the tax reduction means for motorists.
Road tax, fuel, insurance, maintenance – the high costs of running a car are well known to motorists the world over, and are no different – and certainly no cheaper – in Denmark.
 
The Nordic nation's Vehicle Registration Tax (Registreringsafgift – RA), though, represents an enormous outlay for motorists almost unheard of elsewhere. Until now, Danish car and motorcycle owners have paid RA on registering their vehicle of 105 percent of its value for vehicles bought for under 81,700 kroner, and 180 percent of the value for vehicles bought for over this price. 
 
The upper limit was slashed by Thursday's budget to 150 percent, while the former value remains the same in a move the government said would help to “make transport more convenient for families”.
 
 
Analysts have suggested that this reduction will reduce the purchasing price of a medium-sized family car by 10,000-20,000 kroner, which may give some credence to the government’s claim. Less well-off families with smaller cars, however, will be unaffected. By comparison, vehicle registration fees in the United Kingdom set at a flat rate of £55 (550 kroner), and while in neighbouring welfare state Sweden it is just 600 Swedish kronor (480 Danish kroner). 
 
The taxing of Danish car owners dates back to 1910, when the government implemented a tax for driving on public roads. The RA as it stands today got its start in 1924, when the government put a tax on the import of 'luxury items', including vehicles. The two-tiered system has been in place since 1977, with running changes to the price cut-off point for the 180 percent tax.
 
The driving force behind the RA reform is Liberal Alliance party leader Anders Samuelsen, who has advocated a reduction in the tax since as far back as 2012. Last year, Samuelsen told the press that his party supported the complete removal of the 180 percent RA rate, calling it “completely senseless”.
 
A widely-shared image from Liberal Alliance that was nearly unavoidable in the run-up to June's election and again  during the budget negotiations shows the financial break-down of a vehicle purchase, listing the car's actual price, the RA and value-added tax:
 
 

I alt for mange år har vi i DK slæbt rundt på alt for høje afgifter på biler. Lad os få vendt kurven - giv danskerne råd til bedre og sikrere biler. Dét er også velstand.

Posted by Anders Samuelsen on Monday, November 2, 2015
An analysis from liberal think-tank Cepos found that the state stood to profit to the tune of 900 million kroner per year by the stimulation of growth in the sector – and a subsequent increase in revenue from transport-related taxes – if the registration tax was reduced to 105 percent across the board. 
 
Although Samuelsen did not succeed in convincing the government and its other support parties to remove the upper limit, he considers the deal to reduce it to 150 percent a major boon for Liberal Alliance and has called the new budget agreement “a beautiful finance deal”. His photos posted to Facebook of party cohorts celebrating the budget by popping champagne was attacked from the left as proof that the budget was geared toward the well-to-do and business. 
 
The aim of reducing tax on higher income earners to stimulate growth fits in with Samuelsen and his party’s liberal ideology. It has, however, been perceived as a slap in the face for many of the budget’s critics, who have complained of poor prioritization by the government in times when funding for students, the unemployed and the world's poorest people, amongst others, are being cut.

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