Tax changes hit greener cars

Smaller, fuel-efficient cars will bear the brunt of planned vehicle tax reforms.

Next week, the Ministry of Finance will present to car importers two tax reforms, which will come into effect on January 1, 2013. The first is an update of the green taxes, which will be officially presented for the first time. The second reform applies to tax breaks on advanced safety systems.

The green taxes update, a copy of which "Globes" has obtained, include new emissions standards for calculating a car's "green score" for tax breaks. The update is intended to generate NIS 400 million in revenues a year.

Interim tests by car importers found that the new formula will raise prices for some models, especially family cars, by thousands of shekels in some cases, because of the lower tax break. For example, the Ford Focus and Mazda 3 will lose 4-5 points on the new green scale, which could add up to NIS 4,000 to the consumer price.

The Hundai I35 and Toyota Corolla will likely see a small reduction on the green scale and tax break, but this will still add up to NIS 2,000 to the consumer price. Diesel-powered cars will be more affected, losing up to six points on the green scale, eliminating much of the competitiveness. Some compacts could lose 1-3 points, raising their prices by thousands of shekels.

The update will not affect large luxury cars with big engines, such as SUVs and sedans (or saloon cars), which have no green tax breaks in any case because of their high green scores.

Under the new green tax regime, coefficients for all types of emissions will be updated annually from January 1, 2014, on the basis of changes in the Consumer Price Index. Next week, car importers will submit their comments on the updated formula to the Ministry of Finance.

A top source in the car industry said, "Just when gasoline prices are skyrocketing to new heights, the green tax updates in their present format are liable to punish the most fuel-efficient cars, such as compacts and private diesel-powered cars, but will not affect at all the most polluting gas-guzzlers. This contravenes the government decision on the subject."

Another source said, "Belying every recent government measure on competition in the car market, ostensibly intended to lower new car prices, prices for popular models cars will actually go up sharply in January."

Tax breaks for safety systems

The Ministry of Finance's reforms of tax breaks on advanced safety systems were jointly drawn up by the Tax Authority and the Ministry of Transport. The reform will include a new rating system for safety systems, which will be listed on the car's license on the basis of a weighted score for different systems. The score will also determine the tax break on the safety tax for the car. The amount of the tax break has not yet been decided.

The list of safety systems will include, but are not limited to, lane deviation control systems, distance monitors from the vehicle ahead, systems to spot vehicles in a car's blind spots, control systems to slow a car depending on the distance of the vehicle ahead, pedestrian detection and alert systems, braking systems to slow a car in an emergency without the driver's intervention, reverse cameras, air pressure sensors, seat belt sensors, and traffic light sensors.

Importers will supply the safety systems' data on the basis of manufacturers' data. Personally imported cars will attach a manufacturer's statement about the presence of safety systems originally installed in them. Safety systems may be installed in Israel, but they will only be eligible for the tax break if the importers install the systems before delivery to the customer. Industry sources believe that this condition is liable to result in lawsuits by sellers and installers of safety systems in the secondary market, which will face discrimination.

Reporting and registering safety systems will apply to all models from 2012. The reporting will made at delivery of a new model. Industry sources believe that if the tax breaks are marginal, the effect on car prices will be limited, affecting mostly luxury cars, which are equipped with the latest systems.

Industry sources believe that, except for a few secondary systems, most of the safety systems appearing on the list are not even an option for popular cars, and where they are, they can cost between hundreds and thousands of dollars per unit, making it doubtful whether it is economically worthwhile to install them.

Published by Globes [online], Israel business news - www.globes-online.com - on September 5, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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