Israel Considers Tax Changes for Plug-In Hybrid Cars

Israel's Ministry of Finance is considering new tax regulations for plug-in hybrid vehicles (PHEVs), which have become increasingly popular in the local market. The core issue is that PHEVs receive significant tax benefits similar to fully electric vehicles, but many owners may not be charging them regularly, thus relying primarily on gasoline. This practice weakens the justification for the tax breaks, which are intended to encourage environmentally friendly transportation.

The ministry is exploring several options, including a mileage tax or adjusting the existing tax benefits based on actual usage. One proposal involves partially revoking the tax advantage for PHEVs, depending on whether they are predominantly used in electric mode or on gasoline. The Ministry of Finance is examining charging data, particularly from fleet vehicles, to assess real-world usage patterns.

These potential changes could impact the purchase price of new cars and the taxable income for employees who receive company cars. In 2024, over 80,000 PHEVs are expected to be sold, representing approximately 26-28% of all new car sales, a substantial increase from previous years. Chinese brands like JAC, Omoda, BYD, and Chery are leading this surge, with leasing companies and corporate fleets acquiring about two-thirds of these vehicles.

The current tax structure offers a reduction on purchase tax for PHEVs based on their emission class, and a monthly reduction on the taxable value of company cars. For instance, a PHEV company car currently receives a larger monthly tax reduction than a standard hybrid. The Ministry of Finance is considering whether to equalize these reductions or base them on actual electricity consumption, a move that could increase the monthly tax burden for some drivers.