Israel Tax Authority Proposes New Levy on Flights to Increase Ticket Prices

Israel's Tax Authority is advancing a proposal to implement a new tax on all aircraft departing from Israel, aiming to address the aviation industry's contribution to global warming and its current lack of taxation. The authority estimates this new levy could add between 12 and 274 shekels to the price of each flight ticket, irrespective of the travel class. This proposal, detailed in a position paper by the authority's Planning and Economics Division, suggests taxing airlines based on the aircraft's weight and flight distance.

The Tax Authority argues that the aviation sector contributes significantly to greenhouse gas emissions in Israel, accounting for approximately 3.8% of the total. Furthermore, it notes that aviation fuel is exempt from excise taxes, and international flight tickets are exempt from VAT, leaving the industry largely untaxed. The proposed tax aims to generate an estimated 1.1 billion shekels annually for the state, based on 2023 ticket prices.

The tax would be levied on airlines, ranging from approximately 1,300 shekels for a small aircraft on a short flight to about 100,000 shekels for a large aircraft on a long-haul flight. The authority anticipates that airlines will pass these costs onto consumers, though the exact amount each company chooses to absorb or transfer remains to be seen. For instance, a Boeing 737-800 flight to Athens might incur a tax of around 9,400 shekels, while a Boeing 787-9 Dreamliner flight to New York could face a tax of approximately 64,500 shekels.

The projected cost per passenger varies by distance: up to 500 km (e.g., Jordan, Egypt) could see an increase of about 12 shekels; 500 to 4,000 km (most of Europe, Turkey, Gulf states) around 58 shekels; and over 4,000 km (USA, East Asia) approximately 274 shekels. These figures are based on 2023 economy class ticket prices, meaning a family of four flying to Athens might pay an extra 230 shekels, and to New York, an additional 1,100 shekels. The authority estimates that 86% of passengers would pay no more than 58 shekels extra, with a quarter of the tax burden falling on foreign residents and another quarter on the top income decile.

Similar taxes exist in countries like the UK, France, and Germany, intended to reflect the environmental impact of flights. The Tax Authority rejected taxing aviation fuel directly due to potential conflicts with international agreements and the risk of airlines refueling elsewhere. An alternative proposal for a per-passenger or exact-distance tax was also dismissed in favor of the simpler aircraft-based tax, which provides airlines with predictable costs.