Your taxes: Israeli taxation is increasing

With a funding war raging and COVID-19 spending still ongoing, Israeli taxation is only going one way, not down. Please don’t shoot the messenger.

Value added tax (VAT):

The standard VAT rate in Israel will increase from 17% to 18% in early 2025. This is in accordance with an amendment to the VAT Regulation governing the VAT rate on transactions in Israel and imports. Companies with an annual turnover of more than NIS 120,000 can usually reclaim the VAT they pay regardless of the rate, unlike private consumers. Those consumers may want to take delivery of goods or pay for services by the end of 2024 to save 1% VAT on current transactions.

Electric car travel tax proposal:

On March 8, the Ministry of Finance and the Israel Tax Authorities published for public comment a wacky proposal to tax electric and plug-in cars at a rate of NIS 0.15 per kilometer traveled. This would come into effect in January 2026 and complement the proposed congestion charge already underway.

Why would anyone want to tax electric cars? The idea is that gasoline is already taxed, so the travel tax should take things to the next level. Electric cars contribute as much to traffic jams and traffic accidents in the city center as conventional cars. Theoretically, the goal is to motivate people to travel more by public transport.

Illustration of a sign leading to the tax authorities office in Jerusalem. (credit: FLASH90)

But to encourage you to buy an electric car and pay the proposed new travel tax, you will still enjoy a discount on the purchase tax on the first purchase of the car.

The government hopes to raise some money from the travel tax: NIS 1.535 billion in 2026, NIS 1.931 billion in 2027 and NIS 2.404 billion in 2028. The government admits that it needs the money after October 7 (and in our opinion even before ).

The travel tax would be paid every two months. Anyone who drives an electric car, say 30,000 km per year, pays NIS 4,500 travel tax for that year, i.e. about NIS 750 every two months.

Either you file a tax return or the travel tax can be determined for you via a gadget. You have 45 days to pay. If you do not pay after another fifteen days, the debt will be adjusted for inflation. After three months, the overdue interest would also be added. If you don’t pay for four months, you could risk tripling the average tax paid on other similar cars.

To check your bimonthly mileage report, the annual technical inspection of the vehicle is expanded with a mileage check. If you do not pay any balance, your driving license will not be renewed.

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Traffic police will monitor everything. In criminal cases, you can be jailed for up to a year, increasing to 5-7 years if you help someone else violate the travel tax law.

Further suggested details:

New cars put on the road (if the Houthis let them through) are considered to have already driven 100 kilometers, meaning a small tax bill of NIS 15 is immediately collected. When a car is sold, both the seller and the buyer are required to submit a mileage declaration. The traffic police will probably investigate any discrepancies.

Comments:

The proposals are half-baked and not vote-winners. What about saving the environment? What about commercial vehicles? What about rental cars? What about hybrid cars? Why not stick to economical conventional cars? Why not encourage people to work from home even more? Why not use the proposed tax to fund more electric charging stations?

Although the government says the idea is still in the consultation phase, it has published a full bill, not just a plain language consultation document. All this at a time when non-war measures are intended to be postponed until after the war.

Comparison with London, UK:

To help clean London’s air, London operates an unpopular Ultra Low Emission Zone (ULEZ) every day of the year except Christmas Day (December 25). The zone operates in all boroughs of London, but not on the M25 or outside London. If a vehicle does not meet ULEZ emissions standards, the driver will usually have to pay £12.50 per day to drive within the zone.

In short, London taxes dirty, polluting cars, and Israel proposes to tax clean electric cars!

Will the proposal be converted into law?

We’ll see about that later.

In specific cases, always consult experienced advisors (and car mechanics) per country at an early stage.

leon@hcat.co

The writer is an accountant and tax specialist at Harris Consulting & Tax Ltd.

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