Israel to Raise New Car Taxes in January, Increasing Prices by Thousands of Shekels

Israel is set to increase taxes on new cars starting January due to a revised formula for calculating the green score of vehicles, which determines their eligibility for tax benefits. The Israel Tax Authority announced changes that effectively raise the emission weight by about 20%-22%, reducing tax incentives for eco-friendly cars and imposing additional taxes on more polluting models. Electric vehicles will continue to benefit from exemptions as they produce zero emissions, but hybrid and plug-in hybrid models will face higher taxes, with some expected to see price hikes between 3,000 and 10,000 shekels.

This adjustment aims to compensate for the state’s lost revenue caused by the growing popularity of hybrids and plug-in vehicles, which consume less fuel and thus generate lower tax income. The new tax scheme adds up to 19,500 shekels in discounts for electric cars but can impose up to 8,700 shekels in extra taxes on the most polluting vehicles, in addition to existing purchase tax, VAT, and customs duties on imports from countries without trade agreements with Israel, such as China.

The future of reduced purchase tax rates for electric vehicles beyond 2026 remains uncertain. Currently, electric cars pay a reduced purchase tax of 48% instead of 83%, with a maximum discount of 22,000 shekels, but this arrangement expires at the end of 2026. If no new reduced tax is legislated, electric car taxes could rise sharply, potentially exceeding those on other vehicles. However, the declining market share of electric cars from 25% in 2024 to 12% now complicates the justification for such a tax increase.

Discussions on these tax regulations are expected to continue until the last moment, likely after upcoming elections, with uncertainty about the formation of a new government and the composition of the Finance Committee responsible for approving the rules.