Details emerge of proposed driving tax on electric cars

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The driving tax planned for electric vehicles is expected to be at a rate of NIS 0.15-0.20 per kilometre, which will amount to NIS 3,000-4,000 annually for a vehicle that travels an average of about 20,000 kilometers annually. This emerges from internal discussions at the Ministry of Finance.

The decision to impose a driving tax is included in the draft Economic Arrangements Bill published this week, and the tax could come into force in mid-2023 or early 2024, subject to the budget passing the Knesset and political developments. The Ministry of Finance estimates that in the early years of the tax, while numbers of electric vehicles on Israel’s roads are still fairly low, mainly because of supply problems, the tax will yield some NIS 120-140 million revenue annually. From the second half of the decade, however, assuming that forecasts of the penetration of electric vehicles into the Israeli market materialize, it could yield over NIS 1 billion annually.

The proposed pricing is intended to reflect the negative external effects of extra use of electric vehicles, chiefly the effect on road congestion. Nevertheless, it still takes into account the state’s interest in continuing to encourage a switch from gasoline- and diesel-fuelled vehicles. Electric vehicles will therefore continue to have a cost advantage over gasoline vehicles, even after the tax is introduced, because of the gap between the prices of electricity and of gasoline, because of the very low license fee for electric vehicles, which to a large extent will offset the driving tax, and, in the case of company vehicle fleets, because of the NIS 14,400 benefit in the use value for income tax purposes for electric vehicles in comparison with gasoline vehicles.

Sources inform “Globes” that the Ministry of Finance has not yet formulated a clear collection method for the driving tax on electric vehicles. Responsibility for collecting the tax will be imposed on a new “Congestion Unit” to be formed at the Israel Tax Authority in the next few months, the aim being to set up a joint collection system for the driving tax on electric vehicles and the congestion tax, under the “Tax Law for Reducing Traffic Congestion in the Gush Dan Area”. Since the Gush Dan congestion tax is not expected to come into force until 2025, the driving tax could serve as a “pilot” for collecting it.

Among the possibilities being examined for collecting the driving tax are collection in advance through the annual license fee, and an accounting with the driver in accordance with a declaration of actual kilometers driven; taxation through the kilometers recorded on the vehicle’s odometer when it undergoes the annual roadworthiness test or when there is a transfer of ownership; or collection by electronic means, such as using GPS and an app that importers will be obliged to install on electric vehicles. Another possibility is collection through an external contractor. A further idea for the long term that the Ministry of Finance is examining is a battery charging tax, but existing technology does not support collection of the data from charging networks, and especially not from home charging points, so the idea is not yet practical.