Israel’s vehicle importing industry is bracing for a 35% rise in purchase tax on electric cars on January 1. There is also the prospect of the tax benefit on electric vehicles being cancelled altogether in twelve months’ time. Ministry of Finance sources told “Globes”: “The current arrangement for purchase tax on electric vehicles, presented in 2019, is due to expire at the end of 2024. Therefore, unless a replacement tax benefit scheme is proposed during next year, the default is that on January 1, 2025, purchase tax on electric vehicles will come into line with the tax on gasoline and diesel vehicles, and will be set at 83%.”
Vehicle industry sources say that “uncertainty is the worst alternative,” and explain that the planning horizon for vehicle importers in Israel when it comes to stocks and production orders from the manufacturers is at least two quarters. “In the absence of an orderly work plan from the Ministry of Finance for continuation of the reduced purchase tax on electric cars, presented by the end of the second quarter of 2024, the working assumption will be that it is necessary to be prepared for abolition of all the tax benefits on electric vehicles and to cut down on imports of them in 2025.”
The sources say that since an electric car is still more expensive to produce and buy than an equivalent gasoline car, after the rise in purchase tax it will be hard to find electric family cars for less than NIS 180,00-200,000, and it will be much less economically worthwhile to buy them. Imports of these vehicles will therefore decline substantially.
This is already happening in the plug-in hybrid segment, where the tax benefit will expire in January 2024. The importers are planning to cut imports of these vehicles significantly.
The Israel Tax Authority stated in response: “The Ministry of Finance and the Tax Authority will review the situation in the course of the year, and to the extent necessary, and subject to a host of considerations, will submit recommendations on the matter.”
The Ministry of Environmental Protection stated: “We are working together with the other government ministries to produce a program that promotes the meeting of emissions reduction targets to which Israel has committed itself.”
Meanwhile, vehicle imports are becoming more expensive for other reasons as well. The first is the imposition of a war risk surcharge on ships passing through the Red Sea and the Arabian Sea by the major marine insurers, most of which are based in London.
The other is that car exporters in the East Asia are increasingly choosing to send consignments to Europe and the Mediterranean region by the long route via South Africa to avoid the war zone, despite the fact that this raises costs by more than 20%. This is partly because many of the ships are leased from Ray Car Carriers, owned by Israeli businessperson Rami Unger, and Israeli-owned vessels have come under attack from Houthi rebels in Yemen as they pass through the Bab al-Mandeb straits, the entrance to the Red Sea at the tip of the Arabian peninsula.
Published by Globes, Israel business news – en.globes.co.il – on December 7, 2023.
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