Bank of Israel: Green taxes reduced air pollution

The Green Taxation reform on cars has contributed to the reduction in air pollution without changing the tax burden.

The Bank of Israel says that initial figures show that the Green Taxation reform has contributed to the reduction in air pollution without changing the tax burden.

In an excerpt from the Annual Report, which will be published on March 30, the Bank of Israel says, "The inelasticity in the use of private vehicles and insufficient public transport have made the environmentally related taxes on vehicles and fuel into a major source of tax revenue for the government."

The Bank of Israel notes that Israel has been levying a range of environmentally related taxes while cutting direct taxes. It says that a 2008 comparison with OECD countries found that revenues from environmental taxes accounted as a proportion of GDP in Israel above the OECD average, mainly due to Israel's high fuel excise and taxes on vehicles. Furthermore, Israel's public transportation is inadequate, forcing people to use private cars.

In other words, the excise is a regressive tax that shifts the tax burden downwards onto the middle classes and poor.

However, the Bank of Israel cautions that the combination of a high purchase tax on vehicles and a high excise tax on fuel may limit the ability to use them to increase tax revenues in the future. It advises extending taxes that are not derived from fuel consumption and vehicles, in order to create incentives to use advanced methods for waste disposal and reducing pollution.

The Bank of Israel notes that the government raised the fuel excise by NIS 0.20 per liter in January 2011, but rescinded the tax hike on gasoline only a month later in the face of public protest at high fuel prices. Even after the excise hike, excise accounted for 43% of the consumer price of gasoline, similar the average in non-oil-producing developed countries.

The Green Taxation on motor vehicles, which came into effect in August 2009, differentiates the purchase tax on the basis of a vehicle's emissions. Tax credits on company cars were also changed to a fixed proportion of the value of the car. The Bank of Israel says that tax reduced air pollution without changing the tax burden by reducing purchases of high-emission vehicles in favor of low-emission vehicles. It adds that, conversely, the increase in the fuel excise has only a very small effect on demand.

As for other environmental taxes, Israel, like other countries, is in various stages of implementing reforms to increase these taxes and they are expected to account for a larger proportion of tax revenues in the future. Reforms include higher taxes on sewage, waste disposal and the restoration of abandoned quarries, as well as the introduction of congestion taxes and taxation of emissions of pollutants.

The tax on landfill for household waste is the most significant. The price of landfill in Israel has been very low until now relative to the developed countries and as a result there has been little incentive to shift to more advanced methods of waste disposal. In December 2010, the government decided to gradually raise the landfill tax for mixed household waste by NIS 10 per ton each year, up to NIS 90 per ton in 2015 (before VAT). In 2010, the Knesset passed the Packaging Law, which expands the scope of the Deposit Law, and the Tire Recycling Law, both of which impose the responsibility for recycling products on the manufacturers.

The Bank of Israel expects waste disposal laws to increase the proportion of other environmental taxes in total environmental taxes, to 0.16% of GDP in 2015.

Published by Globes [online], Israel business news - www.globes-online.com - on March 15, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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