Finance Minister Bezalel Smotrich has instructed officials to halt the sharp increase in the purchase tax on electric cars, which was scheduled to take effect next month, the Finance Ministry announced today. Instead of raising the tax from 35% to 83%, the tax will now rise to only 45%.
The announcement said that according to the current tax outline plan, the purchase tax on electric vehicles was expected to be equivalent to the tax on gasoline vehicles. However, last night the Minister ordered “a framework that will prevent a significant increase, in order to maintain incentives to switch to electric vehicles while maintaining fiscal responsibility and a balanced budget.”
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The car industry welcomed the announcement after fears that an 83% purchase tax would severely hurt electric car sales in the future. However, industry sources say there are still obstacles to the practical implementation of the directive in the period remaining until the January 2025 tax increase.
The expected revenue from the NIS 600 million tax increase over the next two years has already been incorporated into the budget, and the tax cut will create a budget deficit unless alternative sources of income are found. Originally, the tax was supposed to be reduced to 45% subject to approval of a mileage tax on electric vehicles starting in 2026. However, the tax was eventually postponed due to political considerations.
Even with the tax reduced to 45%, a significant increase in electric vehicle prices is expected. In addition, in January, the annual licensing fee for electric cars will be canceled while the value-added tax will rise by 1% to 18%. However, the bulk of the price increase will likely be felt only in the second half of 2025 because before the end of December, car importers will release from customs, with the lower purchase tax, nearly 70,000 cars, most of them electric. These should be sufficient for at least two quarters of sales.
Published by Globes, Israel Business News – en.globes.co.il – on December 2, 2024.
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