Israel's Auto Market Faces Tax Shifts and Uncertainties in 2027
Israeli tax authorities, in conjunction with the Ministries of Transportation and Environmental Protection, have released a new formula for calculating purchase tax on new vehicles, signaling potential changes for the Israeli car market in 2027. This comes amid a significant rise in Chinese manufacturers' market share in the institutional sector and a noticeable slowdown in electric vehicle sales.
Regarding company cars, the current system of calculating 'benefit value' for usage will remain unchanged until the end of 2028 due to a temporary order. This order aims to facilitate the gradual adoption of advanced vehicle technologies. The current benefit value is 2.48% of the car's value, with preferential rates for hybrid, plug-in hybrid, and electric vehicles. However, tax authorities acknowledge issues with the current system, particularly the lack of differentiation based on actual electric range and the uniform benefit for vehicles with varying electric driving capabilities.
The purchase tax on electric vehicles is a key point of contention. While the tax rate was set at 48% for 2025, with a benefit cap of NIS 22,000, there's a risk it could jump to 83% if a new rate isn't determined before the upcoming elections. Despite annual concerns about this potential increase, a last-minute solution has historically been found. Given the current sluggish sales of electric cars, a significant tax hike is considered unlikely, with estimates suggesting the rate might return to the planned 52% for 2025. This is not expected to cause price increases due to low demand and potential year-end sales promotions.
The "green tax" formula, which determines purchase tax based on environmental impact, has been approved. The core principle is an 83% tax on most vehicles, with a reduced 48% rate for electric cars. An initial, stricter proposal that included emissions from tires and brakes was softened due to a lack of data from vehicle importers. New EU regulations, "Euro 7," will require this data from November, but it will be too late for the upcoming January implementation. Consequently, hybrid vehicles may receive less tax credit, while plug-in hybrids will be largely unaffected. This adjustment is intended to gradually phase out older technologies, though significant price hikes for hybrids are not anticipated in the short term.
Rumors of a mileage tax on electric and plug-in hybrid vehicles starting in January have been dismissed as unfounded. Implementing such a tax faces significant regulatory and practical hurdles, including the need for Knesset approval, which is uncertain given the upcoming elections. Furthermore, the logistical challenges of tracking mileage and managing payments or refunds are substantial, making its introduction in the near future improbable.
