Car prices set to rise due to higher purchase tax, Houthi attacks, strong dollar

Transportation, energy and environmental protection ministries warn that rise in purchase tax for electric cars will hamper Israel’s efforts to cut emissions

Sue Surkes

Sue Surkes is The Times of Israel's environment reporter

A Renault electric car recharges at a charging station in Ramat Hasharon. (Roni Schutzer/Flash90)
A Renault electric car recharges at a charging station in Ramat Hasharon. (Roni Schutzer/Flash90)

Buying a car in Israel is so expensive, mainly because the government charges high purchase taxes. For regular gasoline and diesel cars, this can add up to 83 percent to the price, although it’s usually between 60% and 70%.

In 2019, in an effort to encourage Israelis to wean themselves off gasoline and diesel, the state introduced a taxation framework (viewable in Hebrew), anchored in law, for electric, plug-in hybrid and hybrid cars.

For electric vehicles, the purchase tax was set at just 10% for 2020, rising to 20% this year, and 35% on January 1, 2024.

Hybrids have been taxed like gasoline cars since 2022.

Plug-in-hybrids, which this year enjoy a 55% purchase tax, will join regular cars in January.

In hybrid cars, the electric battery plays less of a role than in plug-in hybrids, where the electric battery is the main source of power.

Energy Ministry Director-General Koby Blitshtein (right) and Environment Ministry Director-General Guy Samet (center) at the Knesset Finance Committee in Jerusalem, December 19, 2023.

On Tuesday, the ministries of environmental protection, energy, and transportation joined hands at the Knesset Finance Committee to protest the rise in purchase tax on EVs.

Guy Samet, the director-general of the Environmental Protection Ministry, told lawmakers that vehicles were responsible for 40% of the emissions that pollute the air and that it was up to the government to reduce them, protect public health and bring Israel up to European air quality and emissions standards.

“When you look at the countries of the advanced world, you see two main ways of encouragement (for EVs),” he said, “incentives, alongside a regulatory mechanism.”

“When you tell an importer that there is a ceiling on certain emissions and that he has to ensure the right mix (of cars), or else there will be fine, it works.”

The treasury’s proposal would destroy any incentive, he charged.

The Energy Ministry’s director-general, Kobi Blitshtein, warned that the move could “sabotage the momentum of the electric vehicle revolution,” enabling only the wealthy to acquire EVs.

Charging an electric car. (Scharfsinn86 via iStock by Getty Images)

Yet these vehicles were an important part of Israel’s national policy goals of increasing energy efficiency and energy independence, reducing the use of oil (a fossil fuel, whose burning is a key driver of global warming) and cutting pollution.

Blitshtein said his ministry had been working for years to apply the European and US practice of obliging car importers to bring in an increasing proportion of electric vehicles. He called on the Finance Ministry to wait with the tax rise until electric vehicles reached a “critical mass” of one in ten vehicles on the road, a goal he said he expected would be reached over the next three years.

Moshe Ben-Zaken, director-general of the Transportation Ministry, said his ministry would continue to fight for the environment and against rises in the cost of living.

A new traffic sign reading’ no entry for polluting vehicles,’ on a street in Jerusalem, February 14, 2020. (Gershon Elinson/FLASH90)

Israel’s electric vehicle market only took off in early 2021 when Tesla started selling in the country.

Today, according to the Transportation Ministry, around 13% of private vehicles are electric in some way.

This contrasts with EV leaders Norway (more than 80% of the market share in 2022), Iceland (41%), Sweden (32%), the Netherlands (24%) and China (22%), according to the World Resources Institute.

In September, the Energy Ministry said it expected that 1.3 million vehicles would be electric by 2030, taking up a 30% market share.

But electric cars are costlier to produce, and therefore to buy, compared with regular ones.

The price of all cars is expected to rise in the new year due to the rising cost of the dollar for Israelis.

This photo released by the Houthi Media Center shows a Houthi forces helicopter approaching the cargo ship Galaxy Leader, November 19, 2023. (Houthi Media Center via AP)

In addition, attacks by Yemen’s Iran-backed Houthi rebels on ships traveling up the Red Sea have prompted some shipping companies to avoid passing through the area, while others will be paying additional insurance, with the end consumer footing the bill.

Last month, the Houthis seized the Galaxy Leade, a huge vessel carrying cars for businessman Rami Ungar, who owns Telkar, the importer of Kia vehicles.

With fewer cars arriving at Israeli ports, retailers are unable to build up inventories this year, which they can sell next year at prices that reflect purchase tax paid in 2023.

From 2024, regular, hybrids and plug-in hybrids will continue to enjoy tax refunds, up to the value of around NIS 17,000 ($4,700), depending on how environmentally friendly they are. (Discounts are also given based on safety measures).

The discount on the purchase tax for an electric car will not be allowed to exceed NIS 50,000 ($13,800) when compared with the cost (including the tax) of the same model run on gasoline or diesel. (This year, the cap is set at NIS 60,000, or $16,500).

All cars are liable for VAT, and some of those imported from the Far East also incur customs tax.

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