Norway to replace electric car VAT exemption with special subsidy

Norway is eliminating the VAT exemption on electric cars. However, a new incentive to purchase electric vehicles is being devised. From 1 January 2023, the VAT exemption will be replaced by a subsidy programme. 

VAT subsidies drive electric sales

Norway’s electric car VAT policy has been remarkably successful. Nearly 80% of the country’s total car sales in September 2021 were electric vehicles. That marks a considerable increase compared to the same month the previous year. 

Under the current policy, electric vehicles are exempt from VAT. By contrast, internal combustion vehicles are subject to 25% plus additional emissions charges. 

VAT exemptions: Who benefits most?

Experts have questioned whether VAT exemptions are the fairest way to incentivise electric vehicle use. For instance, one IMF working paper notes that VAT subsidies disproportionately benefit more affluent households.  

To address the issue, Norway’s government had already considered applying VAT to electric vehicles valued at more than NOK 600 000 .

Norway’s new electric car subsidy

The new electric vehicle subsidy scheme provides financial support equivalent to a VAT exemption up to a a NOK 500 000 sales price. Consequently, the new scheme will affect the price of luxury electric vehicles.

Electric cars with a sales price of under NOK500 000 will not increase in price under the scheme. 

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