Israel Mulls Cutting Tax Breaks for Plug-in Hybrid Cars

Israel's Ministry of Finance is considering reducing tax benefits for plug-in hybrid vehicles (PHEVs) as part of a broader review of the vehicle taxation program. The ministry is examining the environmental and energy impact of PHEVs, focusing on their actual usage patterns and charging frequency compared to gasoline-powered cars. This initiative is being conducted by an inter-ministerial committee.

Currently, Israel offers two main tax incentives for PHEVs. The first is a reduction of approximately NIS 750 in the monthly benefit-in-kind for company-owned PHEVs. This benefit has seen a significant increase in utilization over the past two years, with about 70% of PHEVs sold this year purchased by leasing companies and fleets. As of early 2024, approximately 65,200 PHEVs have been delivered in Israel, a substantial rise from just 6,900 in the same period last year, driven by the influx of more affordable models, particularly from China. PHEVs now constitute about 24.5% of new vehicle deliveries, double their share from the previous year.

The second incentive is indirectly provided through the "green tax" benefit, which is determined by a vehicle's weighted pollution level. Most PHEVs fall into the lowest pollution categories (2 and 3), qualifying for a substantial green tax reduction of up to NIS 18,000 on purchase tax. However, the Ministry of Finance argues that these green ratings are based on optimistic scenarios assuming extensive electric driving. In reality, particularly with fleet vehicles, a significant portion of driving is done using the gasoline engine, leading to higher actual pollution levels.

To establish a factual basis for reducing these tax benefits, the Ministry of Finance is working to create a realistic database of actual electric charging for PHEVs in Israel, with a focus on fleet vehicles. This data will be used to update pollution levels for tax purposes. The ministry is also exploring the possibility of reducing or eliminating the benefit-in-kind for PHEVs equipped with very small batteries. These changes could be introduced in the coming months as part of efforts to reduce the national deficit.

In related news, Israeli vehicle importers are expanding their operations into energy production and storage. Colmobil Energy, the renewable energy arm of Colmobil, has launched commercial operations at a solar power generation and battery storage facility in northeastern Bulgaria. The project, in which Colmobil holds a 60% stake, involved an investment of approximately €60 million and is expected to supply 150 MW of electricity with a 317 MWh storage capacity. Colmobil Energy's CEO, Aviv Pepper, stated that this project is part of the division's expansion, particularly in Central and Eastern European countries. The company also entered the Romanian energy storage market in August, partnering on projects with a capacity of 480 MWh, expected to begin operation in the second quarter of 2027. Pepper noted that the growing demand for energy in Europe, driven by the need to reduce reliance on external oil supplies, necessitates external capital raising, though no decisions have been made yet.