Theoretically, Israel has no reason to worry about the Volkswagen affair. Only manipulations of turbo-diesel engines are involved - an extinct species in Israel - and they are in any case designated for the US market. The general picture, however, has very significant consequences for the Israeli market. At the beginning of the current decade, Israeli instituted environmental taxation, which had a dramatic effect on the competitive structure of the Israeli auto market, the importers' profits, the volume of discounts for leasing companies, the volume of tax collections, etc.
Environmental green taxation affects mainly lower-priced vehicles, and includes a tax credit bracket (of up to NIS 15,000) according to 15 environmentally friendly pollution groups. Inclusion in a specific pollution group is determined by a very complicated formula used only in Israel.
The basic emissions data, however, which are included in the formula and eventually determine the credit for a specific car model, are based on the official data produced from the European emissions tests. The Israeli formula was received with great suspicion at the time by the importers and manufacturers, but Israel Tax Authority figures show a very impressive learning curve for the auto market. Within four years, the average environmental mark of vehicles imported into Israel fell steeply. By 2014, almost 80% of all the imported vehicles were included in the lowest environmental groups (2-4), which receive the biggest tax benefit.
There can be no doubt that a considerable part of the decline in the average environmental mark was due to increased imports of smaller less polluting models, combined with a transition to compact turbo engines and vehicle improvements. Still, a perusal of the drop in the average pollution emissions shows an impressive record that is exception even by global standards. For example, according to the official reports included in the environmental formula, the average particle emissions (NOX) of vehicles in Israel fell 25% in 2009-2014, a figure beyond even the most optimistic European forecasts for the next decade.
It can therefore be assumed that the Tax Authority is asking itself the same question being asked by regulators all over Europe following the revelations about Volkswagen: is this a real improvement in pollution, or is it the result of technological manipulation designed to obtain substantial tax benefits?
A hint of the answer can be found in the Tax Authority's latest report, in which the Tax Authority justified the stiffening of the environmental tax at the beginning of 2015, saying, "Without the revisions (in the environmental tax formula), we would now be in a situation in which nearly 80% of the vehicles would be in the low pollution brackets not necessarily because vehicles pollute less, but because the formula's values have been eroded."
Stated in plain English, "The formula's values have been eroded" means "We suspect manipulation, but we can't prove it." In any case, after the 2015 revision of the formula, cars in Israel are still colored bright green.
Published by Globes [online], Israel business news - www.globes-online.com - on September 30, 2015
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