Israel Considers Ending 'Green Tax' Benefit for Lower-Emission Cars
Translated & summarized from Globes by baba
Israel's Ministry of Finance is considering ending the "Green Tax" incentive for lower-emission vehicles, arguing it has served its purpose and is too costly. The program, introduced in 2009, offered purchase tax discounts based on a vehicle's environmental score. However, market changes and the popularity of hybrid and plug-in hybrid cars have made the incentive less effective, with costs to the state reaching 1.1 billion shekels in 2025. The ministry believes the benefit is now largely absorbed by importers, and average car taxes have already risen significantly.
The story in 6 lines · by baba
- Israel's Finance Ministry may end the "Green Tax" incentive for low-emission vehicles.
- The program, launched in 2009, is seen as having fulfilled its purpose.
- Market shifts, especially with Chinese hybrids, have reduced the incentive's impact.
- The "Green Tax" cost the state an estimated 1.1 billion shekels in 2025.
- Average purchase taxes on cars have already risen significantly in 2025.
- Importers may be absorbing a large portion of the tax benefit.
Israel's Ministry of Finance is reportedly considering the discontinuation of the "Green Tax" incentive, which was introduced in 2009 to encourage the adoption of lower-emission vehicles. Officials believe the program has largely fulfilled its original purpose and that its ongoing cost to the state, estimated at 1.1 billion shekels in 2025 excluding electric vehicles, is no longer justified.
The "Green Tax" mechanism, implemented in 2009, involved increasing the purchase tax ceiling on private cars from approximately 70% to 83%, while simultaneously offering a discount of up to 15,000 shekels (currently up to about 18,000 shekels) based on a vehicle's "green score." This score was calculated using a complex formula that weighed the environmental impact of various pollutants.
However, significant shifts in the automotive market, particularly the rapid influx of Chinese plug-in hybrid and hybrid models that are priced comparably to or lower than gasoline cars, have led to a surge in their popularity. These vehicles accounted for 57% of all new car sales in the first three quarters of 2026, leading the Finance Ministry to conclude that the incentive is now redundant.
Data from the Tax Authority indicates that the "Green Tax's" impact on consumer prices and the effective purchase tax rate has already diminished due to several reductions in the benefit. In 2025, the average purchase tax for passenger cars rose to 52,200 shekels, a real increase of 15.2% from 2024, marking the highest average tax amount since the "Green Tax" was enacted. The average purchase tax rate also increased to 70.7%, returning to levels seen before the tax's implementation in 2008. These increases are attributed to higher tax rates on electric vehicles and a general tax hike across all vehicle types.
Sources within the Finance Ministry suggest that a substantial portion of the "Green Tax" benefit has been absorbed by importers, boosting their profitability rather than fully benefiting consumers. The "green penalty" on highly polluting vehicles, introduced two years ago, generated approximately 308 million shekels for the state in 2025. The benefit for plug-in hybrid vehicles alone cost the state around 373 million shekels in 2025, with costs expected to rise further in 2026 due to their increasing market share.
