Fuel Tax To Be Replaced With Mileage Tax

The fuel tax will be abolished and replaced with a kilometre-based road tax, reports RÚV. The Minister of Finance calls this an important and unavoidable change.

A bill introducing a kilometre tax for electric and plug-in hybrid vehicles was passed by Alþingi at the end of 2023. The next step is to extend this tax to all vehicles.

“This is a similar change to what was implemented for electric vehicles at the turn of 2023/2024. It means that the fuel tax, which has been levied on fuel, will be removed and replaced with a kilometre tax based on the distance driven,” says Minister of Finance Daði Már Kristófersson.

A previous bill proposing a kilometre tax for all vehicles was not passed in the last parliamentary session. It was intended to offset the state’s revenue loss due to the increasing electrification of the national vehicle fleet and was expected to generate seven billion ISK for the state treasury. Daði states that the new system is not significantly different from previous proposals.

“Certain concerns have been addressed, such as double taxation on coastal shipping and other matters. But in essence, the system remains largely the same.”

It is reported that the minister of finance, the prime minister, and the minister of transport plan to introduce the new system later this week. The system is set to take effect in mid-year.

“This is a major change that needs to be properly introduced, and people need to understand what it entails. It is therefore very important that the public realises this is a significant, necessary, fair, and ultimately unavoidable reform,” says Daði.