Treasury seeks to raise car taxes

The preferred choice is to raise the purchase tax on new cars from a maximum rate of 82% to 88% or higher.

The Ministry of Finance is considering two options for raising taxes on new cars: updating the green taxes, which the government approved two years ago, but postponed until after the elections; and the other is to raise the purchase tax.

The revision to the green taxes, which the Ministry of Finance estimates will generate NIS 400-500 million in revenues, was delayed in part because of objections by Minister of Environmental Protection Gilad Erdan. Sources inform ''Globes'' that, as part of deal to revise the green taxes, if it goes ahead, the use value on electric cars will be greatly reduced, or even abolished, at Erdan's demand.

The second alternative is to raise the purchase tax on new cars from a maximum rate of 82% to 88% or higher, the level of a just a few years ago. The Ministry of Finance estimates that such a tax hike would generate substantial revenues.

Ministry sources told "Globes" that the second option is preferred, because updating the green taxes will increase the tax rate on cheaper cars, which currently benefit from the tax break, while leaving taxes on luxury cars unaffected. In contrast, raising the purchase tax will progressively affect all new cars, including jeeps, luxury cars, and gas-guzzlers. But raising the purchase tax, which is an indirect tax, might contravene OECD principles. The OECD has already criticized Israel for its high purchase taxes on new cars.

Electric car venture Better Place Inc., and its parent company, Israel Corporation (TASE: ILCO), have been constantly urging a reduction on the use value of electric cars, which is currently the same as for gasoline and diesel cars. Industry sources believe that if the use value is reduced, it would give Better Place a major boost by making electric cars much more worthwhile for car fleets.

The Israel Tax Authority said in response, "The Tax Authority does not comment on matters under review. In any event, it is unaware of these proposals."

Published by Globes [online], Israel business news - www.globes-online.com - on February 6, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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