Tax Authority confirms higher vehicle tax rates for 2025

In line with the Finance Ministry's earlier announcement, the Israel Tax Authority officially announced Thursday that the rate of purchase tax on electric vehicles will be 45% from January instead of the current rate of 35%. At the same time, the ceiling up to which the tax benefit will apply (the full rate of purchase tax on gasoline-fueled vehicles is 83%) will be lowered to NIS 35,000 instead of the current NIS 50,000.

This means that the effective rate of tax on some electric vehicles, particularly the more expensive ones, will be much higher than the official 45%. The Tax Authority's announcement states: "In accordance with the law, the tax benefit on electric vehicles was supposed to have been cancelled in 2025, such that a purchase tax of 83% would apply to electric vehicles, with a reduction in shekels in the framework of the 'green taxation' benefit. This order is intended to prevent the abolition of the benefit and to continue the reduced tax scheme for electric vehicles."

Several other vehicles will become more expensive 

Alongside the adjustment to purchase tax on electric vehicles, all gasoline, diesel, hybrid, and plug-in hybrid vehicles will become more expensive because of a separate move to lower the ceiling for the "green taxation" benefit given on vehicles in accordance with their pollution levels.

In November, it was reported that the benefit, for which the current ceiling is NIS 18,400, would be lowered by up to NIS 4,000, depending on the vehicle's pollution level. In the end, however, it was decided to lower the ceiling by a further NIS 750, that is, by up to NIS 4,750 in total, in order to finance the purchase tax benefit on electric vehicles.

There are two exceptions to this provision. The first is electric vehicles, which will continue to receive the full "green taxation" benefit of NIS 18,400 until the end of 2027. The second is vehicles with pollution levels of 14 and 15. Up to now, such vehicles have received no green taxation benefit, but henceforth, they will be subject to a graduated "green fine" in accordance with their pollution level.

The fine will range from NIS 1,700 to over NIS 7,000 for the highest polluting vehicles. Among the high polluting vehicles to which the "green fine" will apply are popular gasoline and diesel family SUV models, minivans, and most light commercial vehicles.

The result is that many models will become thousands, and even tens of thousands, of shekels more expensive in 2025.