Israel Updates Green Tax Formula, Raising Costs for Plug-In Hybrid Cars in 2025
Israel's Tax Authority has finalized changes to the green tax formula that determines purchase tax benefits for most new cars sold in the country, set to take effect in January 2025. The updated formula will introduce new pollution parameters, reduce tax credits for plug-in hybrid vehicles, and potentially increase prices for these models. Currently, all new non-pure electric cars face a purchase tax of 83%, but receive deductions up to about 17,000 shekels based on a complex formula assessing five pollutant types. Vehicles are categorized into 15 pollution groups, with cleaner cars like plug-in hybrids receiving significant tax benefits, while highly polluting models receive none.
This year, additional scenarios have been incorporated into the formula to address disparities in benefits for leased plug-in hybrids, which currently receive uniform usage value benefits regardless of driving range. The revised formula is expected to raise the pollution group classification for many plug-in hybrids, reducing their tax credits and increasing their costs. The Tax Authority also considered adding new pollution factors such as tire rubber particles and brake dust emissions, which affect all vehicles including electric cars. Currently, electric vehicles pay a 52% purchase tax without pollution-based credits since they have no exhaust emissions, but the new formula could introduce graded tax credits based on these additional pollutants.
The year 2026 is particularly significant due to the upcoming implementation of the European Union's stricter "Euro 7" emission standards starting November 2024, which Israel follows for vehicle import regulations. Euro 7 introduces tougher limits on particle emissions, battery degradation requirements for electric and plug-in hybrids, and mandates real-time pollution monitoring sensors. Israeli authorities anticipate that new car models will be cleaner from November onward to comply with Euro 7, which would normally increase tax credits. However, the new Israeli formula has been designed to be stricter overall, accounting for these changes and ensuring a net tightening of tax benefits.
The Tax Authority has submitted the new formula proposal to relevant government ministries but declined to comment on the specific calculation methods. The changes reflect a broader regulatory push to reduce vehicle pollution and align with international standards, though they may raise costs for consumers, especially those purchasing plug-in hybrid vehicles next year.
