Israel’s Electric Vehicle Purchase Tax Unlikely to Jump to 83% Despite Regulatory Pressure

Israel’s Tax Authority recently released data showing a significant rise in vehicle imports during the first half of the year, with 152,700 vehicles imported compared to 98,630 in the same period last year. Despite a 55% increase in volume, tax revenues only rose by 31%, reaching 8.3 billion shekels, largely due to the dollar exchange rate and a high share of hybrid and plug-in hybrid vehicles imported from China. Electric vehicle (EV) imports remain subdued because of existing unsold inventory, distorting the perception that EV sales are declining.

Currently, Israel imposes a purchase tax of 83% on new non-electric vehicles, while electric cars benefit from lower rates, 52% today, up from 45% last year. This reduced tax rate is part of a green incentive policy that has gradually increased over the years. However, the purchase tax on plug-in hybrids has already reached the 83% ceiling. Ahead of the annual tax rate review in January 2025, there is speculation that EV purchase tax could rise to 83%, but historical precedent shows this hike never materializes. Typically, government and industry lobbying leads to last-minute interventions preventing such increases.

The plug-in hybrid segment faces its own challenges, especially with the influx of large Chinese SUVs that benefit from generous tax credits and favorable usage value calculations despite their size and emissions. The Finance Ministry is considering revising the pollution scoring formula to include factors like brake and tire emissions, potentially affecting future tax benefits. This formula change is expected soon and may prompt increased imports before implementation.

Another unresolved issue is the "usage value" tax applied to company cars, which adds taxable income based on vehicle value. Electric and plug-in hybrid vehicles receive tax credits, but the current system favors large Chinese plug-in hybrids, making them attractive despite lower electric usage. Attempts to reform this system have stalled due to resource constraints and political challenges.

With elections scheduled for October, major tax policy changes on electric vehicles are unlikely before then. The government is expected to maintain a moderate tax increase on EVs, far below the 83% maximum. The broader green tax policy, initiated in 2009 with planned gradual increases, lacks a current formal schedule, making abrupt changes improbable. Meanwhile, plug-in hybrid sales continue to rise, contrasting with declining pure electric vehicle sales, a trend closely monitored by policymakers.