By January 2025, Israel's automotive market will become significantly more expensive, including all new automobiles – not just electric or hybrid models, Calcalist reported.
The Israel Tax Authority is currently preparing to release a new formula to calculate purchase tax benefits for non-electric cars. Currently, all new non-electric cars sold in Israel are subject to an 83% purchase tax.
However, a portion of this tax – up to 17,000 shekels – can be deducted based on the car's emissions, including hydrocarbons, carbon dioxide and other pollutants. The more a vehicle pollutes, the smaller the tax deduction. Highly polluting vehicles receive no deduction at all and are taxed at the full 83%.
These pollutants classify each vehicle into emission groups as determined by the Transport Ministry. Cars that fall into low-emission groups, such as Groups 2 or 3 (with Group 1 reserved for electric vehicles), receive a significant tax benefit of around 15,000 shekels. However, highly polluting vehicles do not receive any reduction and are taxed at the full 83%.
This formula, however, is not fixed; the weight given to each pollutant in the calculation is subject to change. The formula is updated every two years, and a new update is expected in the coming weeks. Industry insiders believe the update will negatively impact two categories: hybrids and small cars, which are already scarce in Israel. Recently, several new subcompact models have hit the market, priced around 130,000 shekels.
The upcoming price increases aren't solely due to taxation. The Transport Ministry has eliminated the reduced registration fee for electric vehicles, which means the registration cost for a new electric car will rise from the current 600 shekels to match that of gasoline-powered cars, which is based on the car's list price. Since most electric cars aren't cheap, a vehicle priced between 179,000 shekels and 230,000 shekels will now be subject to a registration fee of 2,500 shekels. For higher-end models like the Tesla Model Y or the XPeng P6, the fee will jump to 3,600 shekels.
As for the purchase tax on electric cars, it could skyrocket from 35% to 83% in January. The exact rate remains uncertain. Currently, the purchase tax on electric vehicles is adjusted every January, standing at 35%. Originally, the budget law was supposed to gradually increase this tax while introducing a mileage tax starting in January 2026. However, this proposal – combining the mileage tax with a gradual increase in the purchase tax on electric vehicles – was removed from the 2024 budget and is supposed to be addressed in separate legislation, though it’s unclear when, or if, that will happen.
For the Finance Ministry, this uncertainty is advantageous. The "green taxation" framework, which determines the purchase tax rate on electric vehicles, stipulates that if the proposal isn’t advanced, the tax will jump from 35% to 83% in January. This could significantly diminish the incentive for Israelis to purchase economical, clean and cost-effective cars.
The war-related shutdown of the Eilat Port in November has also dramatically increased shipping costs, with car importers facing a surge in transportation expenses. According to industry sources, shipping costs for vehicles from Asia to Israel have risen by several hundred percent, and the trend shows no signs of reversing.
As the tax hike looms in January, car importers are rushing to bring in vehicles in December and clear them through customs. Most of these cars will be electric and imported from Asia. Importers are still selling vehicles that arrived in Israel last December, but they are struggling. Many are registering large numbers of cars in their own names for "zero-mileage" sales, and customs officials report that importers are already preparing to export Chinese electric cars to Europe.
The first impact of these developments will likely be a hit to electric vehicle imports in December, which is a crucial month for the entire Israeli auto industry.