Israel Tax Authority Proposes New Flight Tax to Increase State Revenue

The Israel Tax Authority has proposed a new tax on flights departing from Israel, which could increase the cost of air travel for passengers. The proposed tax, detailed in a position paper released Sunday, is estimated to add up to 75 Israeli shekels (approximately $20 USD) per passenger on long-haul flights, such as those to the United States or East Asia. The tax is expected to generate about 1.1 billion shekels (approximately $300 million USD) annually for the state, based on 2025 prices. This proposal is currently under consideration and is not yet a finalized policy.

The recommendation, developed by the Tax Authority's planning and economics division, follows discussions during the recent state budget and precedes upcoming budget deliberations. The proposed model would levy a tax on each aircraft departing Israel, varying by the aircraft's weight category and flight distance. This tax would be a fixed sum per flight, determined by the aircraft's specifications and destination, rather than by the number of passengers. The suggested tax amounts range from approximately 1,300 shekels for a domestic flight on a lighter aircraft to up to 100,000 shekels for a long-haul flight on a heavier plane.

For passengers, the Tax Authority estimates the added cost to be around 12 shekels for domestic flights, 58 shekels for medium-haul flights (primarily to European destinations), and up to 274 shekels for long-haul flights. This new tax is projected to represent about 4% to 5% of the ticket price for consumers. The Tax Authority stated that the initiative aims to make the aviation industry contribute to the environmental and health costs it generates, citing contributions to global warming and the need for investment in healthcare and noise-protected infrastructure due to air pollution and noise from takeoffs and landings.

The position paper highlights that while other sectors like automotive and industry face some environmental taxation, the aviation sector is largely untaxed beyond direct taxes. This is partly because VAT is not applied to consumption outside Israel, resulting in a zero VAT rate on international flights, and aviation fuel is exempt from excise taxes. The authority also reviewed international emissions reduction mechanisms but found them insufficient, noting that countries like the UK, France, and Germany have implemented flight taxes to reflect the environmental impact of air travel. The Tax Authority considered several taxation alternatives, including per-passenger taxes, distance-based taxes, and fuel taxes, ultimately recommending the aircraft weight and flight distance model for its operational simplicity and predictability for airlines.