Abolishing the tax exemption on aviation fuel for domestic flights will cause a 30% jump in fares and raising the excise on natural gas will boost electricity rates by 1%, said Israel Tax Authority senior deputy director general planning and economics Eran Yaakov today. He also said that the tax on oil and gas profits will be less than expected.
Israel's aviation industry currently enjoys a NIS 1.4 billion annual tax break on jet fuel, and the Tax Authority is examining reducing tax exemptions at the order of the Knesset Economic Affairs Committee.
Yaakov said that it would only be possible to abolish the exemption for domestic flights because international flights are protected by treaties. He estimates that abolishing the tax exemption on fuel for domestic flights would generate NIS 100 million in annual revenues.
Speaking at the at an Israeli Institute of Energy and the Environment conference, Yaakov said that Israel's fuel tax burden has not increased in recent years, despite the rise in fuel prices, due to the rise in global oil prices. "The fact that VAT also applies to the fuel price hike component is irrelevant, just as it is irrelevant for the prices of other commodities on which VAT is levied," he said.
Yaakov presented a comparative table which showed that fuel taxes in Israel were close to the average. The audience pointed out that a comparison based on purchasing power parity would show that fuel prices in Israel are much higher than in Europe, to which Yaakov replied that, as far as fuel prices were concerned, the comparison was irrelevant.
Yaakov said that the maximum taxes on oil and gas profits (the Sheshinski tax) would be 44.5%, not 50%, because the government has promised that the tax and the companies tax would not change. The maximum tax was originally set at 50%, on the assumption that the companies tax rate would fall to 18%. But the end to tax cuts means that the maximum level of the Sheshinski tax will fall.
Yaakov confirmed that the Tax Authority plans to raise the excise on natural gas and coal, even though this will further boost electricity rates. He claimed, however, that the increase would not exceed 0.5-1%.
Yaakov also confirmed that there is a plan to levy an annual NIS 3,000 fee on compressed natural gas (CNG) cars on the grounds that the currently tax is too low. He said that the Tax Authority does not want to raise the excise on CNG because this would boost the cost of cooking gas for householders, as there is no good way to differentiate between CNG for cooking gas and for transportation. He estimated that, even after the fee on CNG cars is levied, the cost of travel by these cars will still be less than for gasoline cars.
Yaakov added that the Tax Authority plans to raise the excise on natural gas, currently at NIS 16 per ton, and on coal, currently at NIS 43 per ton, because the current tax rates do not reflect the environmental costs of these fuels. He added that the Tax Authority has set a rate of NIS 118 per ton on liquefied natural gas (LNG), but added that the high tax would not be applied on LNG imported this month because the tanker turns the LNG back into its gaseous state before the gas enters the country.
Israel Electric Corporation (IEC) fuels administration director Shimshon Brockman said in response that an excise hike on natural gas and coal would be rolled over in full on to electricity consumer through higher rates. As for the tax on LNG, he said that such a high tax renders LNG imports not worthwhile.
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2013
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