Israeli Car Market Awaits Post-Election Tax Reforms Amid Budget Deficit Concerns
The Israeli automotive sector is experiencing an extended summer slowdown this year due to the upcoming elections, with significant regulatory reforms on vehicle taxation postponed until after the vote. These reforms, initially planned to take effect in early 2027, particularly target "green" vehicles such as electric, plug-in hybrid, and hybrid cars. Importers and consumers remain uncertain about future tax policies as the government seeks ways to address a growing budget deficit.
The Ministry of Finance is focusing on the "Green Tax Committee," which aims to develop a long-term environmental tax framework for green vehicles. This effort responds to the sharp decline in fuel tax revenues caused by the increasing adoption of low-fuel-consumption vehicles. Fuel tax, currently about 60% per liter, is a major revenue source, with projected income of approximately 27.68 billion shekels in 2026, up 8% from 2025 and nearly 50% over the past decade. However, electric and plug-in vehicles, now about 40% of new car sales and 8% of the total fleet, threaten this income stream.
Forecasts indicate that by the end of the decade, the rise of electric vehicles will reduce gasoline consumption by 15-20%, potentially costing the state over 2 billion shekels annually without compensatory measures. Similar challenges are faced by European countries, with the UK recently announcing a mileage tax starting in 2028. Israel is considering several fiscal tools, including raising fuel levies (politically sensitive), revising the "green score" formula that determines tax benefits for new models, and introducing emissions from tire and brake wear into the calculation, which could increase taxes on plug-in vehicles.
Other debated measures include ending or reducing purchase tax exemptions for electric cars, which currently stand at 48% compared to 83% for other vehicles but with a capped benefit of 22,000 shekels. Additionally, reforms to the tax benefits on company cars, which cover about 70% of 300,000 vehicles and influence green car purchases, are under consideration but face political resistance. A previously proposed 15-agorot per kilometer mileage tax on electric and plug-in vehicles, expected to generate billions annually, remains shelved for political reasons but could be reintroduced post-election.
In summary, the Israeli government faces pressure to fill budget gaps by revising vehicle taxation policies, especially on green vehicles, with key decisions deferred until after the elections. The automotive market and consumers await clarity on these fiscal changes that will shape the sector's future.
