Israel Considers Phasing Out Green Vehicle Tax Benefits Starting 2027 Amid Market Shift

An internal committee within Israel's Ministry of Finance is currently evaluating the possibility of significantly reducing or canceling tax incentives for "green" vehicles in the coming years. The committee, which includes representatives from the Budget Department and the Tax Authority, is reassessing the necessity of these benefits due to recent rapid changes in the automotive market, particularly the sharp increase in electric and low-emission vehicles over the past year.

According to updated registration data, nearly 120,000 electric, hybrid, and plug-in vehicles were sold in the first half of this year, accounting for approximately 67% of all new car sales, a 15% increase compared to the same period in 2025 and nearly double the penetration rate of 2023. Officials note that the Israeli market has naturally transitioned to low-emission models, partly due to the expanding availability of affordable Chinese-made vehicles, which diminishes the need for continued state subsidies through the "green tax" benefits.

The green tax incentive, introduced in 2009 when green vehicle penetration was minimal, originally offered a tiered purchase tax reduction of up to 15,000 shekels based on a vehicle's pollution level. Over time, the formula has been tightened, reducing the number of qualifying models and lowering the maximum benefit. The planned phase-out, estimated to cost the state about 2.5 billion shekels annually, will begin in early 2027 with a stricter pollution classification that includes emissions from electric and plug-in vehicles, such as particulate matter from tire and brake wear. This will reclassify many plug-in hybrids into lower benefit categories, reducing their tax breaks and potentially saving the treasury hundreds of millions of shekels per year.

Simultaneously, the Finance Ministry is reviewing monthly usage value benefits for employees with company green cars, currently ranging from 560 to 1,350 shekels depending on the vehicle type. The penetration of green vehicles in corporate fleets has surged to nearly 90% in the past two years. The ministry argues that the original rationale for this benefit, to offset higher prices of green vehicles compared to gasoline cars, no longer applies as prices have equalized.

In related automotive news, XPENG is expanding its model lineup in Israel with the recent launch of the premium electric minivan X9 and plans to introduce the compact crossover L03 soon. The X9 features a 347-horsepower motor, a 110 kWh battery with up to 615 km range, and supports ultra-fast charging up to 542 kW. The L03, positioned below the G6 model, is expected to cost around 170,000 to 180,000 shekels and includes advanced autonomous driving support. Additionally, Israeli importer Simlat introduced the new Jeep Compass crossover, equipped with a 1.2-liter turbocharged hybrid engine, priced from about 210,000 shekels.

The Finance Ministry stated that the committee is still studying the issues related to vehicle taxation and has not yet formulated practical recommendations.