Car Prices Set to Rise in Israel: Factors Impacting the Market

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Car prices in Israel have long been known to be significantly higher compared to other countries, primarily due to the government’s high purchase taxes. These taxes can add up to as much as 83 percent to the price of a regular gasoline or diesel car. However, in recent years, the Israeli government has introduced new taxation frameworks to encourage the adoption of electric, plug-in hybrid, and hybrid cars. These changes have had a significant impact on the automotive market in Israel. Car Prices Set to Rise in Israel: Factors Impacting the Market

The Taxation Framework for Electric and Hybrid Cars

In 2019, the Israeli government implemented a taxation framework for electric, plug-in hybrid, and hybrid cars in an effort to reduce the country’s reliance on gasoline and diesel vehicles. Under this framework, the purchase tax for electric vehicles was set at just 10% in 2020, increasing to 20% in 2021, and will reach 35% on January 1, 2024. On the other hand, hybrids have been taxed like gasoline cars since 2022.

The introduction of this taxation framework aimed to incentivize the purchase of electric and hybrid vehicles by reducing the associated costs. However, recent proposals to increase the purchase tax on electric vehicles have sparked concerns among various ministries and industry stakeholders.

Environmental Concerns and the Push for Electric Vehicles

One of the key arguments put forth by advocates of electric vehicles is the need to reduce air pollution and emissions caused by traditional gasoline and diesel cars. Guy Samet, the director-general of the Environmental Protection Ministry, highlighted that vehicles account for 40% of the emissions that pollute the air in Israel. He emphasized that it is the government’s responsibility to take action to protect public health and align with European air quality and emissions standards.

Samet emphasized that countries in the advanced world have successfully encouraged the adoption of electric vehicles through a combination of incentives and regulatory mechanisms. By setting emissions ceilings and imposing fines for non-compliance, importers are motivated to ensure a balance in their vehicle offerings. However, the proposed increase in purchase tax on electric vehicles in Israel is seen as potentially detrimental to this approach.

The Impact on the Electric Vehicle Revolution

Kobi Blitshtein, the director-general of the Energy Ministry, expressed concerns that the proposed tax increase could undermine the momentum of the electric vehicle revolution in Israel. He emphasized that electric vehicles play a crucial role in achieving the country’s goals of increasing energy efficiency, reducing oil consumption, and cutting pollution. The Energy Ministry has been working towards mandating car importers to bring in an increasing proportion of electric vehicles, following the practices of European and US markets.

Blitshtein urged the Finance Ministry to delay the tax rise until electric vehicles reach a “critical mass” of one in ten vehicles on the road. He projected that this goal would be achieved within the next three years. The Transportation Ministry also voiced its commitment to environmental protection and the fight against rising living costs.

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The electric vehicle market in Israel has experienced significant growth since Tesla started selling its vehicles in the country in early 2021. According to the Transportation Ministry, approximately 13% of private vehicles in Israel are now electric in some form. While this growth is notable, Israel still lags behind leading countries in electric vehicle adoption, such as Norway, Iceland, Sweden, the Netherlands, and China.

The World Resources Institute states that Norway holds over 80% of the market share for electric vehicles, followed by Iceland with 41%, Sweden with 32%, the Netherlands with 24%, and China with 22%. Israel aims to increase the market share of electric vehicles to 30% by 2030, with an estimated 1.3 million electric vehicles on the road.

Factors Affecting Car Prices

Car prices in Israel are not only impacted by taxes but also by various external factors. One such factor is the rising cost of the dollar for Israelis, which is expected to contribute to an overall increase in car prices in the coming year. Additionally, recent attacks by Yemen’s Iran-backed Houthi rebels on ships traveling through the Red Sea have disrupted shipping routes and increased insurance costs for shipping companies. These additional expenses are ultimately passed on to the end consumers, further affecting car prices.

Inventory Challenges and Tax Refunds

Recent incidents, such as the seizure of the Galaxy Leader, a ship carrying cars for an Israeli importer, have disrupted car shipments to Israeli ports. This disruption has led to challenges for retailers in building up inventories this year, which would typically be sold in the following year at prices reflecting the purchase tax paid in the current year.

From 2024, regular gasoline, hybrid, and plug-in hybrid vehicles will continue to enjoy tax refunds, up to a value of approximately NIS 17,000 ($4,700), depending on their environmental friendliness and safety measures. However, the discount on the purchase tax for electric cars will be capped at NIS 50,000 ($13,800) compared to the cost of the same model running on gasoline or diesel.

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The Israeli government’s efforts to encourage the adoption of electric and hybrid vehicles through taxation frameworks have sparked debates and concerns among various ministries and industry stakeholders. While the tax incentives initially boosted the growth of the electric vehicle market, the proposed increase in purchase tax on electric vehicles has raised questions about the potential impact on the market’s momentum.

The push for electric vehicles in Israel is driven by environmental concerns, the need to reduce air pollution and emissions, and the country’s goals of increasing energy efficiency and reducing oil consumption. However, external factors such as the rising cost of the dollar and disruptions in shipping routes have added further complexities to the car market, ultimately affecting prices.

It remains to be seen how the Israeli government will navigate these challenges and strike a balance between promoting environmental sustainability, incentivizing electric vehicle adoption, and ensuring affordability for consumers in the face of rising car prices.