Israel's Ministry of Finance has detailed the reasons for imposing a travel tax on electric vehicles. The aim is to compensate the loss of revenue from purchase tax on cars and excise tax on fuel as a result of switching to an electric vehicle.
This can be gleaned from a comprehensive report on the introduction of electric vehicles into Israel, published today by the Ministry of Finance Chief Economist. This is an official government estimate for the loss of state revenue from the excise tax on fuel, which would occur if and when Israel switches to electric vehicles on a massive scale.
The state is addicted to fuel revenue
According to the Ministry of Finance's data, each electric vehicle with an average distance traveled of about 16,000 kilometers per year would cause the state a "loss" of about NIS 3,100 per year from fuel excise revenue, and in a scenario where there will be about a million electric vehicles on the roads, towards 2030, this would mean a cumulative loss of NIS 3 billion per year in real terms, or about 0.5% of state revenue.
The authors of the research wrote, "The decrease in actual revenue is expected to be even greater for two main reasons: Firstly, in practice the vehicles on the road that are expected to go out of use over the years have an average fuel consumption significantly lower than 17 km per liter, so that the total excise they pay is higher. Secondly, electric vehicle buyers typically drive higher than average distances because the lower travel costs are particularly attractive for these drivers."
Electric vehicles are being adopted faster than anticipated
The report claims that electric vehicles are entering Israel at a faster rate than anticipated and write that "In 2022, the proportion of electric vehicles out of all imported vehicles was 19.7%, including plug-ins, similar to the average in Europe and much higher than the targets set for that year. Electric vehicles receive a number of significant tax benefits today through discounts on purchase tax and the annual license fee."
However, the automotive industry points out in response that this is a skewing of the data: the report includes plug-ins with gasoline vehicles, even though these are two categories whose tax benefits are quite different, as are emissions and fuel consumption. It is also claimed that the Ministry of Finance uses the "proportion of imported vehicles" index to illustrate the accelerated rate of penetration and not the actual sales rate index. This is despite the fact that in the last quarter of 2022 there was huge imports of electric vehicles into the importers' stocks ahead of the purchase tax hike in January 2023.
In practice these are vehicles that will be sold in 2023 and should not be counted as coming onto the Israeli market in 2022.
Ministry of Finance: Travel tax is justified
The report claims that the justification for imposing a special travel tax on electric vehicles is that they are expected to travel further than average and will bring increased traffic congestion. The report says that journeys in an electric vehicle is about 75-80% cheaper compared with gasoline vehicles.
"According to conservative estimates," the report says, "assuming that the taxation on an electric vehicle will not change, the journey in an average electric vehicle may be about 15% further than in a gasoline vehicle, which would lead to a worsening of congestion on the roads within a few years. This phenomenon is expected to be particularly problematic in Israel given the fact that even today congestion on the roads in Israel is very high by international comparison."
The report also identifies several pollution factors attributed to electric vehicles, including the increase in greenhouse gas emissions from the higher electricity production requirements for electric vehicle charging and more.
The Ministry of Finance proposes imposing a travel tax on electric vehicles from 2026, which appears in the recently published draft of the new regulations law. According to the same proposal, a tax of NIS 0.15 per kilometer would be imposed, although according to the Ministry of Finance the actual cost should be higher.
The Ministry of Finance also hints at plans to examine the future the imposition of a travel tax on all vehicles, including gasoline vehicles, based on a similar collection system, while gradually reducing the excise tax on fuel "to avoid double taxation."
Published by Globes, Israel business news - en.globes.co.il - on February 22, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.