Treasury revives plan to tax EVs for each km traveled

As part of the Economic Arrangements Law accompanying the 2025 budget, the Finance Ministry plans to impose a tax of NIS 0.15 per kilometer driven by electric vehicles. This tariff will be lower than the NIS 0.19 per kilometer that drivers of cars with combustion engines pay as a customs tax. The idea was originally proposed in 2023 but was not approved by the cabinet due to objections from some ministers. The tax will be paid every two months after calculating the number of kilometers driven by the electric vehicle.

In 2024, with the need to increase state revenues due to the war, the law was brought up again, but was ultimately excluded from the Economic Arrangements Law, and was not brought up for discussion in the Knesset. This was allegedly due to Finance Committee Chairman Moshe Gafni’s boycott of the Finance Ministry’s reforms as part of his struggle for a budget for teachers’ salaries in independent Haredi schools, even though these schools are not subject to government oversight.

According to industry sources, the Finance Ministry is now aiming to include a travel tax on electric cars in the 2025 budget, and they have quite a few pressure points. In January, the purchase tax on electric cars is set to rise sharply, with the usual discount canceled, meaning a jump from the current purchase tax of 35% to 83%, which will lead to a sharp rise in car prices. As part of a gradual plan, it is proposed to implement a gradual increase over the next three years, so that it will rise to 45% only in January. However, the source of funding for this gradual increase will be the imposition of a travel tax, which will bring NIS 1.5 billion to the state coffers in 2026 and NIS 2.4 billion in 2028.

Without taxes, cars would become more expensive.

These two measures – the introduction of an electric car travel tax and the phasing out of the purchase tax rebate – are linked to each other in that if the electric car travel tax is not passed, electric car prices will rise significantly from January.

Another conditional factor for the travel tax was included in the 2024 budget summary, when it was decided that Transport Minister Miri Regev’s “Transportation Justice” reform to lower public transportation fares would only be partially funded, with discounts for peripheral areas, soldiers, youth and people with disabilities. The second stage of the reform, which includes a discount for areas with a socioeconomic rating of 1 to 5, would be funded on the condition that the travel tax be imposed on electric vehicles.

The development of the Kiryat Ata metro system is also subject to higher license fees for electric cars. This may be the reason behind the minister’s change of heart on taxing electric cars. At a press conference in March, she said, “We are here to promote public transportation, not electric cars.”

Despite the Ministry of Transportation’s support for the travel tax on electric cars imposed by the Finance Ministry, the path to enacting such a law is still full of obstacles, starting with the approval of Finance Minister Bezalel Smotrich, through the opinion of the Attorney General, and up to the approval of the Cabinet and the Knesset.

Travel will remain cheaper.

According to the Finance Ministry, the cost of travel in fuel-efficient gasoline-powered vehicles is about NIS 24 for a 30-kilometer round trip. A similar trip by bus or train costs NIS 13, and in an electric car it costs just NIS 7. According to the Finance Ministry, the tax is intended to correct these gaps. Moreover, according to the Treasury, even after the tax on electric vehicles is imposed, trips will still be cheaper.

In a study conducted by the Tax Authority and the Ministry of Finance last year, it was found that the external costs of air pollution, greenhouse gas emissions, noise, the cost of time lost in traffic jams, accidents and parking spaces amount to about NIS 62 per 100 kilometers for a gasoline car, compared to NIS 59 per 100 kilometers for an electric car.

“These benefits justify formulating a government policy to remove structural and regulatory barriers to increasing the penetration of (electric vehicles) in the Israeli market,” the study said. “However, tax-related policy aspects should also clearly reflect the components of external costs, as an electric vehicle does not have an advantage over a gasoline-powered vehicle.”

This article was published in Globes, Israeli Business News – en.globes.co.il – on September 18, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.