Smotrich reduces hike on EV purchase tax

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Purchase tax on electric vehicles will rise from 35% to 45% next month, instead of the planned 83%.

The Ministry of Finance announced today that Minister of Finance Bezalel Smotrich has instructed officials to halt the sharp rise in purchases tax on electric vehicles, which was due to come into effect next month. Instead of hiking the tax from 35% to 83%, the tax will now only rise to 45%.

The announcement said that according to the current taxation outline plan, purchase tax on electric vehicles had been expected to equal the tax on gasoline vehicles. However, last night the minister ordered "a framework that would prevent the drastic increase, in order to keep incentives for switching to electric vehicles while maintaining fiscal responsibility and a balanced budget."

The car industry welcomed the announcement after fearing that 83% purchase tax would severely harm future electric vehicle sales. However, industry sources say that there are still obstacles to the practical implementation of the directive in the period remaining until the tax increase in January 2025.

Expected revenue from the tax increase of NIS 600 million over the next two years, has already been integrated into the budget and the tax cut with create a budget shortfall unless alternative sources of income are found. Originally, the tax was supposed to be reduced to 45% on condition that a mileage tax on electric vehicles be approved starting in 2026. However, the tax was ultimately postponed due to political considerations.

Even with the reduction in the tax to 45%, a significant increase in the prices of electric vehicles is expected. In addition, January, the benefit in the annual license fee for electric vehicles will be canceled while VAT will rise 1% to 18%. However, the bulk of the price increase will probably only be felt towards 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 vehicles, most of them electric. These should be enough 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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