Israel Proposes 120,000 NIS Tax Cap and New Regulations for Taxi Industry
The Israeli Ministry of Finance has published a draft order to overhaul taxation and trade in the taxi industry, introducing a 120,000 NIS ceiling on purchase tax exemptions, stricter usage quotas, and formal regulation for taxi brokers.
The Ministry of Finance is preparing a comprehensive regulatory overhaul of the commercial and tax aspects governing the Israeli taxi industry, according to a draft customs tariff and exemptions order published by the ministry.
The Israeli taxi market remains substantial. According to Ministry of Transport data, 2,760 taxis were sold in Israel during the first eight months of the year. Of those, 1,786 were equipped with gasoline engines, while only 81 featured diesel engines—representing a dramatic shift from a decade ago when diesel dominated the sector, as hybrid models now constitute the majority. Additionally, 893 electric taxis were sold during this period.
Tightening Tax Exemptions and Definitions
The draft order outlines significant changes to purchase tax rates and conditional exemptions. Currently, conditional exemptions grant taxi owners full or partial relief from purchase tax, customs duties, and VAT for vehicles designated as taxis. Eligibility hinges strictly on the vehicle's legal definition and licensing.
Under the proposed rules, the customs definition of a taxi will be updated. Previously, a taxi was defined as a "public motor vehicle designed to transport up to ten persons excluding the driver, and designated as a taxi on its vehicle license." The new definition specifies a "motor vehicle designed to transport up to ten persons excluding the driver for hire, designated as a taxi on its license, provided that it is used exclusively as such."
Furthermore, authorities will officially recognize a vehicle as a taxi "only if the vehicle was released under the name of the eligible taxi owner." Individuals will generally be permitted to clear only one tax-exempt taxi, while fleet owners must scale their exemptions based on the number of drivers they employ. The vehicle must also be operated as a public taxi for at least 240 days per year.
"The establishment of a ceiling is intended to focus the tax benefit on the acquisition of a taxi as a working vehicle used for public transport, while setting a reasonable limit on the scope of the benefit granted for luxury vehicles whose prices significantly exceed those of standard taxis," the draft order states.
Capping Tax Benefits and Curbing Fraud
While the baseline purchase tax rate remains at 8%, the state is introducing a strict cap of 120,000 NIS on the tax benefit for the first time. Previously, the 8% rate applied without a ceiling, technically allowing luxury cars to receive massive tax breaks as long as they served as taxis.
The regulatory update also targets illicit trading practices. Customs investigations revealed that brokers frequently exploit third parties who are not professional drivers to secure illegal tax exemptions, sometimes submitting false declarations regarding the ultimate vehicle owner.
To address this, legitimate taxi brokers will be formally recognized under a temporary regulatory framework lasting until the end of 2028. Under strict customs supervision and specific conditions, recognized dealers—who must hold authorized dealer status, a dealer badge under the Traffic Ordinance, and secure, monitored storage facilities—will be integrated into the legal commercial chain without forfeiting tax benefits.
