Encouraging the use of public transportation and reducing the use of private cars is one of the declared goals in the current Economic Arrangements Bill. One of the measures included in the bill, however, will have the opposite effect. Raising taxes on diesel fuel is expected to increase the cost of organized transportation to work and schools, which reduces rush hour road congestion, especially in outlying areas, by up to 17%. The cost of transporting goods and cargoes in trucks is also slated to rise, thereby increasing the consumer prices of those goods and the cost of living.
Diesel fuel for transportation currently costs NIS 4-5 per liter, with tax accounting for two thirds of the final price, the same as for the gasoline used in private cars. In contrast to private car owners, truck and bus owners are entitled to reimbursement of up to 50% of the tax through credits from the Israel Tax Authority.
In the Economic Arrangements Bill, however, the Ministry of Finance is proposing the gradual elimination of the partial tax exemption on diesel fuel for transportation, starting in 2018. Full elimination of the exemption is expected to increase state tax revenue by NIS 3.5 billion. Instead of the diesel fuel tax discount, the Ministry of Finance is proposing a discount on taxes for compressed natural gas (CNG), considered a more environmentally friendly fuel, and which can be produced from Israeli gas.
The Ministry of Finance explains that it wants to provide an incentive for a transition and conversion of trucks and buses from polluting diesel fuel to CNG. The construction of infrastructure for CNG refueling, however, is proceeding at a snail's pace, and there are very few fuel stations offering such refueling for private vehicles. Nor is there any arrangement for importing CNG-driven trucks and buses, which cost more than diesel-driven trucks and buses. Even the Ministry of Finance projects that the CNG penetration rate will not exceed 10% of the truck and bus market in the coming years.
Following the publication of the initiative for the tax hike, complaints were made to the Ministry of Finance by the Association of Israeli Transportation Companies and the Israel Road Transport Board. Through Advocates Renato Jarach and Eitan Tzafrir from the M. Firon & Co. law firm, the Association of Israeli Transportation Companies asserts that eliminating the diesel fuel tax exemption will increase the cost of private organized transportation in Israel by 17%, including the transportation of students to school and workers to places of employment. The Association includes several hundred transport companies using 4,000 buses.
The measure is not expected to affect public transportation operators Egged and Dan and the independent operators, because the state is obligated to compensate them for higher costs in operating their routes.
Organized private transportation is considered one of the most efficient means of transportation in Israel, because it contributes a great deal to reducing the use of private vehicles during the rush hour. A recent survey found that 10% of employees in Israel use organized transportation to travel to work, a lower rate than previously. Furthermore, the survey also found that organization transportation to work is used more in outlying areas than in the central region. For example one third of employees in Carmiel and a fourth of employees in Beer Sheva and Yokneam travel to work in organized transportation, compared with only a few percent in Givatayim and Tel Aviv.
The cost of transporting goods by truck is also projected to rise significantly as a result of eliminating the diesel tax exemption. 94% of goods in Israel are carried in trucks, and only 6% travel by train.
In meetings conducted today by the Association with parties in the Ministry of Finance budget department and the Tax Authority, a compromise was proposed for implementation of the gradual reduction in the tax refund. Under this compromise, buses manufactured in 2015 will receive another one-year delay in the elimination of the refund, so that reduction in the refund will begin only in 2019, instead of in 2018, while the reduction for 2016 buses will apply starting in 2020.
Following this agreement, the head of the Association of Israeli Transportation Companies told "Globes,", "We have insisted all along that we support a transition to natural gas. At the same time, however, we think it should be done cautiously and responsibly, while weighing all the relevant considerations, and for the benefit of all parties affected by the measure."
Published by Globes [online], Israel business news - www.globes-online.com - on August 11, 2016
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