Avis CEO Hardi Isok talks about what the car tax will bring

The car tax that will come into force in 2025 has been a hot topic for a long time and it is clear that it will affect all car owners. But what impact will it have on the wallets of businesses and how would it make most sense for them to manage their cars in the future?

Looking for other options

According to Hardi Isok, a member of the board of Avis Estonia, a car rental and full-service leasing company, the car tax will encourage entrepreneurs to make use of a variety of mobility options. “The focus is on getting journeys done, but at the same time being as flexible as possible on the cost side,” he says, adding that rental services are becoming the preferred option, with fewer looking at leasing.

Isok admits that in the current difficult economic climate, it is good to keep as many costs as possible in variable costs – so they can be managed as needed. “Leasing is a long-term commitment, but renting is very flexible and can be terminated quickly if you wish,” Isok adds.

The car tax will make operators critically assess the real need for car(s) and how journeys can be made in the most cost-effective way.

“If the sales representative wants to go to Tartu, the car will be taken on a short-term lease. If there is a project in progress, the length of which is uncertain, it is a good idea to use a long-term car rental,” Isok gives examples. “Only when it is known that the need for a car is certain and permanent, the decision is made in favour of leasing.”

Taxes are going to Latvia

Latvia has one of the lowest car taxes in Europe. Isok says that Estonia has a plan to raise millions for its budget through the car tax, but it could fail because the taxes will flow to Latvia, as they once did after the alcohol excise was raised. To prevent this, he suggests making the tax more favourable and taxing every registration.

“If each registration channel were taxed, the expected budget would be spread over a larger number of transactions,” Isok says. “The lower the tax, the less likely it is to go to Latvia instead.”

In the current situation, people in South Estonia, for example, may start to think seriously about a Latvian number plate. In addition, it is as if there are two Estonias – vehicles on the register and vehicles being added to it.

Unhealthy competition

Isok says that if Estonia’s car tax starts to differ significantly from Latvia’s, it could lead to unfair competition. “The winners will be those who can buy and register cars in other countries – not everyone can,” he explains. “Those who can will register the vehicles in Latvia, bring them here, use them for a while and then drive them away.”

Isok admits that there is a significant risk scenario where thousands of vehicles could be registered in Latvia instead of Estonia. The higher the tax rate, the more schemes there will be. His advice would be to take less risk initially and test the market.

Flexibility is the key

Isok predicts that businesses will start to combine different mobile services and new opportunities will come to the market.

“Mobility is not just about renting and leasing. It’s all of the above,” adds Isok. “Avis aims to be a mobility company where the customer can get different solutions conveniently in one place. We believe this is also the most beneficial for businesses.”

Isok recommends keeping cost decisions as free as possible and stresses that variable costs are always better than fixed costs for a company. By combining rental services with, for example, full-service leasing, the cost side can be easily reallocated if necessary.

Households are increasingly moving towards consumption

According to Isok, consumers are increasingly interested in using things rather than owning them. This is why more and more private individuals are opting for rental services instead of buying a car. People are also starting to wonder whether they really need a car.

“In the countryside, car ownership is definitely higher, but in cities there are other ways to get around, such as short-term car rental with Avis Now or public transport,” says Isok.

Something for everyone

According to Isok, Avis is well prepared for the car tax. “We have something for everyone. We offer full-service rentals, as well as short- and long-term rentals. In a nutshell, we offer a mobility solution from half an hour up to five years,” he says, adding that it is companies offering a range of mobility services that will be preferred by businesses from the new year.