Your Taxes: Israeli taxation is going higher and higher - opinion

With a war to finance and COVID-19 expenses still lingering, Israeli taxation is going only one way, which isn’t down. Please don’t shoot the messenger.

Value Added Tax (VAT):

The standard rate of VAT in Israel will rise from 17% to 18% at the beginning of 2025. This is according to an amendment to the VAT regulation dealing with the rate of VAT on transactions in Israel and imports. Businesses with annual revenues above NIS 120,000 can generally recover VAT they pay whatever the rate, unlike private consumers.   So those consumers may want to take delivery of goods or pay for services by the end of 2024 to save 1% VAT on transactions in progress.

Electric Car Travel Tax Proposal:

On March 8, the Finance Ministry and the Israeli Tax Authority published for public comment a wacky proposal to tax electric and plug-in cars at the rate of NIS 0.15 per kilometer traveled. This would begin January 2026 and be in addition to a proposed congestion charge already on the way.

Why would anyone want to tax electric cars? The idea is that gasoline is already subject to an excise tax, so the travel tax should level things up. Electric cars contribute to inner-city traffic jams and road accidents as much as conventional cars. So, theoretically, the aim is to motivate people to travel more by public transport.

But to encourage you to buy an electric car and pay the proposed new travel tax, you would still enjoy a purchase tax reduction when first purchasing the car.

The government hopes to raise some money from the travel tax: NIS 1.535 billion in 2026, NIS 1.931 billion in 2027, and NIS 2.404 billion by 2028. The government admits it needs the money following October 7 (and before then in our opinion).

The Travel Tax would be paid every two months. Anyone driving an electric car say 30,000 km in a year would pay NIS 4,500 travel tax over that year, i.e. around NIS 750 every two months.

Either you report or the travel tax may be assessed for you by a gadget. You’d have 45 days to pay. After 15 more days, if you don’t pay, the debt will be inflation-adjusted. After three months,  interest arrears would also be added. If you don’t pay for four months, you may be liable to triple the average tax paid on other similar cars.

To check up on your bi-monthly kilometer reporting, the annual vehicle “Test” of roadworthiness would be expanded to include a kilometrage-traveled check. If you don’t pay up any balance arising then, the vehicle license won’t get renewed.

Traffic cops will supervise it all. In criminal cases, you may get a year in jail, rising to 5-7 years if you help someone else break the Travel Tax Law.

Further proposed details:

New cars put on the road (if the Houthis let them through) would be deemed to have already driven 100 kilometers, meaning a petty tax bill of NIS 15 would be collected right away. If a car is sold, both the seller and purchaser would be required to file a kilometrage declaration. Presumably, the traffic cops will investigate any discrepancies.

Comments:

The proposals are half-baked and not vote winners. What about saving the environment? What about company cars? What about rental cars? What about hybrid cars? Why not stick with fuel efficient conventional cars? Why not encourage people to work even more from home? Why not use the proposed tax to finance more electric charging stations?

While the government says the idea is still at the consultative stage, it has published a complete bill, not just a consultative document in plain language. All this at a time when non-war measures are meant to be postponed until after the war.

Comparison with London, UK:

To help clear up London’s air, London operates an unpopular Ultra Low Emission Zone (ULEZ) every day of the year, except Christmas Day (December 25). The zone operates across all London boroughs, but not the M25 road or outside London. If a vehicle doesn’t meet the ULEZ emissions standards the driver generally must pay a £12.50 daily charge to drive within the zone.

In short, London taxes dirty polluting cars, and Israel is proposing to tax clean electric cars!

Will the proposal pass into law?

It remains to be seen.

Always consult experienced advisers (and car mechanics) in each country at an early stage in specific cases.

leon@hcat.co

The writer is an accountant and tax specialist at Harris Consulting & Tax Ltd.