Israel’s Finance Ministry Plans to Cut Green Tax Benefits, Raising Plug-In Vehicle Prices from 2027

Israel’s Finance Ministry is set to reduce the green tax benefits for plug-in hybrid vehicles starting in 2027, a move expected to increase their prices. Plug-in hybrids have surged in popularity in Israel, costing the state hundreds of millions of shekels annually due to generous green tax incentives. The ministry aims to curb these costs by revising the pollution scoring formula that determines the size of the tax benefit.

Currently, Israel offers three main tax benefits for vehicles: a reduced purchase tax for electric cars (48% versus 83% for gasoline/diesel), a monthly reduction in taxable benefit for employees with green company cars, and a green tax credit based on a vehicle’s pollution group, which can reach up to 15,000 shekels. The Finance Ministry is focusing on adjusting the green tax credit, which has become increasingly costly due to the influx of affordable Chinese plug-in hybrid models that qualify for the highest benefits.

The existing pollution formula, based on European standards, rates plug-in hybrids very favorably because it assumes regular electric charging, resulting in low emissions scores. However, the ministry argues this is misleading since many Israeli drivers rarely charge these vehicles and rely mostly on their gasoline engines, producing emissions comparable to or higher than regular hybrids.

To address this, the ministry plans to incorporate "secondary pollution" factors such as particulate matter from tire and brake wear into the pollution formula. Since plug-in hybrids are heavier than conventional cars, this could push them into higher pollution categories, reducing their tax benefits. This approach is pioneering globally and precedes similar European regulations (Euro 7), though its environmental impact and data reliability remain debated.

For consumers, this change could mean price increases of several thousand shekels on plug-in hybrids and hybrids, as the tax benefit reduction applies to the vehicle’s pre-tax price. Some of the cost might be absorbed by manufacturers due to market competition, but overall, the reform is expected to save the state money at the expense of buyers. The Finance Ministry has avoided altering other green incentives due to political and social sensitivities, focusing its efforts on this targeted adjustment to the green tax credit formula.