Israel Updates Vehicle Purchase Tax Calculation Formula

The Ministry of Environmental Protection recently published guiding principles for changing the method of calculating pollutant emission factors for vehicles, which determine purchase tax. The new formula will take effect this January, marking a significant shift after a decade of the current procedures. This change may make plug-in hybrid electric vehicles (PHEVs) more expensive and impact electric vehicle taxation.

Current Tax Structure

In Israel, vehicles are divided into two groups: electric (52% purchase tax) and all others (83%). A decade ago, the state introduced a tax credit system for non-electric vehicles, deducting up to 18,000 shekels based on a complex formula involving five pollutants.

The New Formula

The Ministry’s proposal introduces a more sophisticated approach, accounting for four types of emissions:

• Hot emissions: Pollutants emitted when the engine reaches a stable operating temperature.

• Cold emissions: Emissions from startup until the engine and catalysts reach optimal temperature. This particularly affects PHEVs, as their gasoline engines often operate while "cold."

• Wear emissions: Particulate matter generated by the mechanical wear of tires and brake pads. This applies to all vehicles, including electric ones.

• Evaporation emissions: Fuel vapors originating from the fuel system.

Market Implications

Israel has adapted the European COPERT model, which aligns with Euro 7 standards. Data is provided by manufacturers rather than measured on the road. While some vehicles may move into higher pollution brackets, reducing their tax credit, the final impact on consumer prices remains uncertain. Intense market competition, particularly from Chinese manufacturers, may lead importers to absorb costs or seek further discounts from manufacturers to maintain sales.