Israel to Cut Fuel Tax by 0.5 Shekels Per Liter Starting September 7

Israel's Ministry of Finance has prepared a draft regulation to reduce the gasoline tax by 0.5 shekels per liter, effective the night of September 7. Finance Minister Bezalel Smotrich is set to sign the order after receiving approval from the government's legal advisor. The measure will take effect after a public comment period concludes on September 6. This reduction aims to lower the price of gasoline to 7.75 shekels per liter, down from the current 8.25 shekels.

The primary legal hurdle for the regulation was its proximity to elections, as government guidelines advise restraint on non-urgent matters during election periods. The tax relief discussion began following a significant increase in gasoline prices over the past month, attributed to the war with Iran, the closure of the Strait of Hormuz, and rising natural gas prices in Europe. The regulated price of gasoline reached a record 8.25 shekels per liter in September, a historical high.

This price cut will only apply to state-regulated gasoline, not diesel or liquefied gas, whose prices are not controlled. The excise tax reduction is estimated to cost the state approximately 155 million shekels per month, totaling around 310 million shekels. Funding will come from the Ministry of Finance's surplus, generated by personal import tax exemptions.

Despite internal Ministry of Finance consensus against intervening in pricing via fuel excise taxes due to potential budget deficits and future demands for further reductions, the ministry's legal advisor, Koppel, argued it was an urgent step given the high prices. He noted the proposed actions are limited in scope and duration, contrasting them with a more significant and longer-lasting excise tax reduction during the 2022 elections.

Gasoline prices had previously risen to a 14-year record of 8.25 shekels per liter on September 1, surprising analysts who had predicted a slight decrease. The Ministry of Energy attributed the increase to a roughly 6% rise in international gasoline prices, only partially offset by a 3% drop in the dollar's exchange rate. The previous historical high for 95-octane gasoline was also 8.25 shekels per liter in September 2012.