Israel Proposes New Tax on Flights to Fund State Budget

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Israel's Tax Authority proposed a new tax on outbound flights to raise 1.1 billion shekels annually, aiming to make the aviation sector account for its environmental impact. The tax will be based on aircraft weight and flight distance, adding an estimated 4-5% to ticket prices. Foreign residents and higher-income Israelis are expected to bear the majority of the tax burden, aligning with global trends in environmental taxation.

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Israel's Tax Authority proposed a new tax on outbound flights to raise 1.1 billion shekels annually.
The tax aims to make the aviation sector account for external costs like pollution and climate change.
Flight taxes will vary based on aircraft weight and distance, adding 4-5% to ticket prices.
Foreign travelers and high-income Israelis are expected to shoulder most of the new tax burden.
Similar flight taxes are already in place in countries like the UK, France, and Germany.

Israel's Tax Authority has proposed a new tax on outbound flights from the country, aiming to generate approximately 1.1 billion shekels annually based on 2025 prices. This initiative is part of broader discussions surrounding the upcoming state budget. The proposal seeks to address the minimal taxation currently applied to the aviation industry, which, unlike land transport or industry, benefits from a zero VAT rate on international flights and an exemption on jet fuel taxes.

The Tax Authority highlighted that leading countries like England, France, Germany, the Netherlands, and Denmark have already implemented similar flight taxes to combat the climate crisis and promote greener aviation solutions.

The proposed mechanism involves a tax levied on each departing aircraft, calculated based on its weight category and flight distance. This approach was chosen for its operational simplicity and the predictability it offers airlines. For domestic flights (under 500 km), the tax per passenger would be around 12 shekels. Short-to-medium haul flights (e.g., to Europe and Gulf states) would incur a passenger tax of approximately 58 shekels, with aircraft taxes ranging from 4,452 to 16,943 shekels. Long-haul flights (e.g., to the US and East Asia) would see a passenger tax of about 274 shekels, and aircraft taxes from 15,871 to up to 100,000 shekels for the largest planes.

Consumers are expected to see an increase of about 4% to 5% in their flight ticket prices due to this tax. For example, a flight to London or Paris might see an added cost of 56 to 73 shekels, and to New York, between 223 and 262 shekels in economy class.

Analysis of departure data suggests that 25% of the tax burden will fall on foreign residents. Among Israeli travelers, another quarter is expected to be paid by individuals in the top income decile, with a similar portion from deciles 8-9. Lower income deciles are projected to bear only 2% to 6% of the total tax burden.

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