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Israel’s Finance Ministry and the Israel Tax Authority have announced significant changes to the country’s vehicle tax system, set to take effect in January 2025.
The new tax adjustments will impact both electric and traditional fuel-powered vehicles, resulting in higher prices for several models.
The tax rate on electric vehicles (EVs) will rise from the current 35% to 45%, making them more expensive for consumers.
This increase comes as part of a broader adjustment to the country’s “green taxation” policies, which are designed to incentivize environmentally friendly vehicles.
However, the ceiling up to which the purchase tax benefit will apply is also being reduced. Currently set at NIS 50,000, the tax benefit will now be capped at NIS 35,000.
This shift means that the tax burden on more expensive electric vehicles will be even higher than the new 45% rate, as the benefits will no longer apply to the full value of the vehicle.
While the tax benefit was initially intended to expire in 2025, the government is making these changes to continue offering a reduced tax scheme for EVs, in line with its ongoing efforts to support the green taxation initiative.
In a statement, the Tax Authority explained that the 83% purchase tax on gasoline vehicles is set to remain in place, but the full tax benefit for electric vehicles would no longer apply to high-end models.
The move is intended to curb the growing cost of the tax benefit while balancing the need to maintain support for the electric vehicle market.
In addition to changes for EVs, gasoline, diesel, hybrid, and plug-in hybrid vehicles will all face price hikes due to a separate shift in the green taxation benefit.
The ceiling for this benefit, which currently provides up to NIS 18,400 for vehicles based on their pollution levels, will be lowered by NIS 4,750. This adjustment aims to finance the purchase tax benefit on electric vehicles.
However, there are a few exceptions to the new rules. Electric vehicles will continue to receive the full green taxation benefit of NIS 18,400 until the end of 2027, ensuring that their prices will remain relatively stable during this period.
Similarly, vehicles with pollution levels of 14 and 15, which previously received no green taxation benefit, will now face a “green fine.”
The fine will be graduated based on the vehicle’s pollution level, ranging from NIS 1,700 to over NIS 7,000 for the highest-polluting models.
The vehicles affected by this “green fine” include popular family SUVs, minivans, and most light commercial vehicles that fall into higher pollution categories. As a result, many popular car models are expected to become more expensive by thousands, and in some cases tens of thousands, of shekels in 2025.
The Israeli government is positioning these changes as part of its broader environmental goals, aiming to reduce pollution and encourage more sustainable vehicle choices.
However, the new tax policy is likely to spark mixed reactions from consumers and the automotive industry, with many predicting that the price increases could slow the adoption of electric vehicles and lead to higher costs for a range of other vehicles as well.
As the implementation date of these changes approaches, the Israeli public and automotive sector will be closely monitoring their impact on both car prices and the country’s overall environmental objectives.