EV travel tax seen yielding NIS 1.5b in first year

New cars at Haifa Port  credit: Shutterstock
New cars at Haifa Port credit: Shutterstock

The tax is due to be imposed from 2026, to compensate for loss of revenue from taxation of fuel. 11.4% of state revenues derive from vehicle taxation.

The state’s revenues from taxation of motor vehicles were estimated at over NIS 50 billion last year, representing 11.4% of total state revenues from taxes and fees, and 2.8% of GDP. The figures are in a new study by the Knesset Research and Information Center analyzing state revenues in 2023 and the revised 2024 budget. The figures include purchase tax on new vehicles, purchase tax on spare parts, license fees and excise duty on gasoline and diesel fuel, taxation of personal use of company cars, and VAT.

Vehicle fees alone brought in NIS 6.2 billion last year. Revenue from fees is expected to rise by a further 6.7% to NIS 6.8 billion, 29.2% more than collected in 2022. According to estimates by the Ministry of Finance, the cancellation of the discount on license fees for electric vehicles in January 2025 will bring in an extra NIS 500 million next year.

Annual road license fees for vehicles in Israel are among the highest in the OECD, and are much higher than the OECD average.

"A rapid switch to electric vehicles in the coming decade could lead to a fall in state revenues and to a fiscal challenge in the long term," the study says. To meet this challenge, revenue from purchase tax on vehicles will be significantly boosted by the rise in purchase tax on electric vehicles included in the new 2024 budget.

The analysis reveals that imports of electric and plug-in hybrid vehicles in December 2023 brought forward in order to beat the rise in purchase tax to 35% in January this year yielded NIS 1.9 billion revenue in December. The rise in purchase tax and the abolition of the "green taxation" on plug-in hybrids that came into effect on January 1 are expected to add NIS 480 million to state revenues this year alone.

According to the analysis, if tax benefits for electric vehicles are abolished altogether in January 2025, and purchase tax on them rises to 83% as on gasoline fueled vehicles, that will result in NIS 2.57 billion extra purchase tax revenue in 2025 alone. If, however, the rate of purchase tax on electric vehicles rises to just 45% next year, as proposed in the budget, that will bring in only NIS 540 million more in 2025 than in 2024.

The study also indicates that the new travel tax meant to be imposed on electric vehicles from 2026 will be a gold mine for the state. According to estimates by the Ministry of Finance, in 2026, the first year in which the tax is due to be imposed, revenue from it will be NIS 1.54 billion.

Despite a rise of more than 175% in the number of electric vehicles on Israel’s roads last year, state revenue from excise duty on fuel grew by almost NIS 1.5 billion, to a total of NIS 20.6 billion.

Published by Globes, Israel business news - en.globes.co.il - on February 15, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

New cars at Haifa Port  credit: Shutterstock
New cars at Haifa Port credit: Shutterstock
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