As part of the Economic Arrangements Law accompanying the 2025 budget, the Ministry of Finance plans introducing a tax of NIS 0.15 for each kilometer traveled by electric vehicles (EVs). This tariff would be lower than the estimated NIS 0.19 per kilometer paid in excise tax by drivers of combustible engine cars. The idea was originally proposed in 2023 but was not approved by the cabinet due to objections by some ministers. The tax would be paid every two months after calculating how many kilometers the EV had traveled.
In 2024, with the need to increase state's revenue due to the war, the law was again proposed, but was eventually excluded from the Economic Arrangements Law, and did not come up for discussion in the Knesset. It was claimed that this was due to Finance Committee Chairman Moshe Gafni's boycott of the Ministry of Finance reforms as part of his fight for a budget for teachers' salaries in independent haredi schools, even though these schools are not government supervised.
According to sources in the industry, the Ministry of Finance is now aiming to include the EV travel tax in the 2025 budget, and they have quite a few pressure points. In January, the purchase tax on EVs is due to rise sharply, with the cancellation of the customary discount, which means a jump from the current purchase tax of 35% to 83 %, which will result in a sharp rise in car prices. As part of a staggered plan, it was proposed that a gradual increase would apply over the next three years, so that it would only rise to 45% in January. However, the source of financing this gradual increase would be imposing the travel tax, which would bring the state coffers NIS 1.5 billion in 2026, and NIS 2.4 billion in 2028.
Without the tax cars will become more expensive
These two measures - imposing EV travel tax and the gradual cancelling of the purchase tax discount are linked to each other so that if the EV travel tax does not pass then EV prices will rise significantly from January.
Another contingent factor for the travel tax was made in the budget summary for 2024, when it was decided that Minister of Transport Miri Regev's 'Transport Justice' reform for lower public transport fares would only be partially budgeted, with discounts given to the periphery, soldiers, young people and people with disabilities. The second phase of the reform, which includes a discount for localities with a socioeconomic rating of 1-5, will be budgeted, subject to the imposition of the EV travel tax.
The development of the rapid transit (metronit) network in Kiryat Ata is also subject to higher electric vehicle license fees. These may be the reasons for the change in the minister's position regarding the imposition of taxes on EVs. At a press conference last March, she said, "We are here to encourage public transport, not electric cars."
Despite the support of the Ministry of Transport for the Ministry of Finance's EV travel tax the road to the enactment of such a law is still full of obstacles, from approval by Minister of Finance Bezalel Smotrich, through the Attorney General's opinion and onto the approval of the cabinet and the Knesset.
Travel will remain cheaper
According to the Ministry of Finance, the cost of traveling in fuel-efficient gasoline vehicles costs about NIS 24 for a 30 kilometer round trip. A similar trip by bus or train costs NIS 13, and in an electric vehicle the cost is only NIS 7. The tax, according to the Ministry of Finance, is designed to correct these gaps. Moreover, according to the Treasury, even after the tax is imposed on the EVs, journeys will still be cheaper.
In a study by the Tax Authority and the Ministry of Finance over the past year, it was found that external costs from air pollution, greenhouse gas emissions, noise, the cost of time lost in jams, accidents and land allocated for parking is almost NIS 62 per 100 kilometers for a gasoline car compared with NIS 59 per 100 kilometers for EVs.
The study said, "These benefits justify the formulation of a government policy to remove infrastructural and regulatory barriers to increase the scale of penetration (of EVs) into the Israeli market. However, policy aspects related to taxation should also clearly reflect the components of external costs, in which the EV does not have an advantage over the gasoline vehicle."
Published by Globes, Israel business news - en.globes.co.il - on September 18, 2024.
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