The High Court last month ruled Victoria's electric vehicle impost constitutionally invalid as states do not have the power to impose excise taxes on consumption.
Treasurer Tim Pallas confirmed he had received advice the government was obliged to repay the money collected.
"We're now going through a process of identifying who it is that we need to rebate," he told reporters on Wednesday.
The law charged electric and hydrogen vehicle owners 2.8 cents for each kilometre they travelled during the year and plug-in hybrid vehicle owners 2.3 cents.
About $7 million was raised by the tax since it came into effect in mid-2021.
Mr Pallas warned it could several months to identify who is owed money and for the repayments to lob in bank accounts.
"We've even decided to be sufficiently generous, albeit that there isn't an obligation to pay interest, to pay the interest on the retention of those funds," the treasurer said.
"It's a relatively small amount. What is not a relatively small amount is a re-imagining of the constitution by the High Court ... and it's going to cause very substantial problems for every state."
Shadow Treasurer Brad Rowswell said the money should be returned to Victorians' pockets before Christmas.
"For goodness sakes, they've known since October that this tax was collected illegally," he said.
"They didn't need to wait for advice, the government should have done the right thing at that time and got in place a system to return this money to Victorians who need it now more than ever."
Victoria's road user charge was designed to match the contribution drivers of fuel-powered vehicles already make to road maintenance through a commonwealth fuel excise.
Victorian drivers Chris Vanderstock and Kath Davies launched the lawsuit shortly after the state government introduced the laws targeted at electric, hydrogen and plug-in hybrid vehicles.
Greens treasury spokesman Sam Hibbins suggested the ruling was an opportunity for the state to improve its electric vehicle policies, fostering increased uptake.
"Victoria has some of the most polluting cars in the world on our roads," he said.
"We don't have the sorts of fuel efficiency standards like other countries."
13°C