Transport Ministry publishes draft "green tax" revision

Yesterday evening, the Ministry of Transport published a first draft of the revision to the formula for calculating "green taxation" on new vehicles. The formula, which takes into account the levels of various pollutants emitted by vehicles sold in Israel, is the basis of the "green score" according to which tax breaks on the various vehicles are set. The formula is reviewed every two years, with the next update due to come into force in January 2021.

First reactions from the vehicle imports industry is that the update is moderate in comparison with the previous one, and is not expected to raise prices dramatically. The price rise will mainly fall on the smallest and cheapest vehicles on the market, for which the tax break is significant in relation to the total price. According to initial estimates, assuming that importers do not absorb the increase for commercial reasons, the price rise in January will be in the region of NIS 1,000-1,5000 for small cars such as the Kia Picanto, and NIS 1,500-2,500 for small SUVs. The most polluting vehicles, which in any case do not benefit from the "green taxation" scale, will not be affected at all.

Taxation of hybrid and pure electric vehicles, which was determined in 2019 in a separate order, will not be directly affected by the revision to the formula. Indirectly, however, the revision could make it difficult for key hybrid models sold in Israel to be placed in the "Green Group 2", which is essential for obtaining the full tax benefit on hybrid models. An initial examination indicates that the Hyundai Kona Hybrid is liable to lose its tax benefit, making it not worthwhile to import it, and it is still not clear whether the new Hyundai Sonata Hybrid, which is supposed to reach Israel shortly, will merit the tax benefit.

Irrespective of the current taxation revision, in January 2021, purchase tax will rise from 45% to 50% on hybrid cars and from 25% to 30% on plug-in hybrids.