Israel Tax Authority Proposes New Tax on Flights

Israel's Tax Authority has proposed a new tax on commercial flights departing from Israel, estimating it could generate approximately 1.1 billion shekels annually based on 2025 prices. The proposed tax would range from 4% to 5% of the flight ticket price. The authority suggests varying amounts for different flight distances: about 12 shekels for domestic flights, 58 shekels for medium-haul flights to Europe and the Gulf states, and 274 shekels for long-haul flights to the US and the Far East. According to the Tax Authority's analysis, foreign residents would pay about a quarter of the total tax, with the top income decile contributing another quarter. The remaining tax burden would be distributed among other income groups, with higher earners expected to bear a proportionally larger share due to their greater spending on flights compared to essential expenses.

The proposal, authored by Dr. Uri Grufel and Nili Ben Tovim from the Tax Authority's Planning and Economics Division, was previously included in the 2026 Arrangements Law but was removed. The publication of this comprehensive document suggests that the Tax Authority and the Ministry of Finance may aim to reintroduce it in the Arrangements Law accompanying the 2027 budget. The rationale behind the proposed tax is the significant contribution of air travel to global warming, a phenomenon Israel invests resources in mitigating. The tax also aims to address local air pollution and noise pollution from flights, which necessitate additional investment in healthcare and noise-protected infrastructure.

The commercial aviation sector in Israel is currently not taxed on its negative environmental impact, unlike land transportation and industry. International flights are exempt from VAT as they are considered exports, and jet fuel for commercial flights is not subject to excise tax, unlike fuel for ground vehicles and small aircraft used for agriculture or training. The proposal specifically excludes small aircraft, which are already taxed on fuel. Several Western countries, including the UK, France, and Germany, have implemented taxes on departing flights to reflect their environmental costs.

The Tax Authority notes that the potential for energy efficiency improvements in aviation is limited. While new aircraft are more fuel-efficient, a significant portion of the environmental impact stems from non-carbon emissions like nitrogen oxides and contrails, which are less affected by fuel consumption. The authority warns that without new incentives for technological development, further energy efficiency gains may not materialize. The preferred taxation model examined involves a combination of aircraft weight and flight distance, with medium-haul flights being the most efficient per kilometer.