Israel to Cut Fuel Tax by Half a Shekel Amid Price Surge

The maximum price for a liter of 95-octane self-service gasoline in Israel will decrease by half a shekel, to NIS 7.75, starting at midnight. This reduction follows a recent price peak and comes after Finance Minister Bezalel Smotrich decided to lower the excise tax on fuel by 50 agorot per liter. The move received legal approval despite initial questions about implementing tax cuts during an election period, as the government is operating under transitional restrictions.

Despite the constraints, the Finance Ministry's legal advisor, Dudi Koppel, supported the measure, arguing that high fuel prices justified swift action. He noted that this reduction is smaller in scope and duration compared to a similar tax cut implemented during the 2022 election period. Smotrich is expected to sign the order enabling the price drop.

The tax cut addresses a significant increase in fuel prices since the beginning of the year. In January, a liter of gasoline cost NIS 6.85, rising by approximately NIS 1.40 to NIS 8.25 by September. This surge was partly attributed to global energy market increases linked to the conflict with Iran and the closure of the Strait of Hormuz.

Even with the reduction, gasoline prices will remain about 90 agorot higher than at the start of the year, recovering only a portion of the recent increase. The tax reduction applies only to gasoline, whose prices are regulated in Israel; diesel and LPG prices are not controlled and are therefore unaffected.

The fuel price decrease could also impact the consumer price index. Fuel, along with charging and oils, constitutes about 2.6% of the index. A roughly 6% drop in gasoline prices might lower the index by approximately 0.15 to 0.16 percentage points in the month the reduction is fully reflected. This development could support moderating inflation and potentially further interest rate cuts by the Bank of Israel, depending on other economic indicators.