Israel’s Extended Tax Break Keeps Electric, Hybrid Cars Humming

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By Matthew Kalman

Israel has extended its lower purchase tax rate on electric and hybrid cars for two more years, continuing a “Green Taxation” reform that economic reports and automobile dealers indicate has helped put more low-emission vehicles on the road.

Until the end of 2019, sales of hybrid and plug-in vehicles at the bottom of Israel’s car emissions table will continue to be taxed at 30 percent instead of the 83 percent rate for all gas-fueled, and all-electric vehicles will be taxed at 10 percent, Finance Minister Moshe Kahlon announced Sept. 28. The reductions have been in place since 2009 and were scheduled to end Dec. 31, 2017.

“The rationale for the introduction of reduced tax rates was the cost of technology, particularly the electric battery, and as a result, very high import prices, which were also reflected in the purchase tax,” the Israel Tax Authority said in an email Sep. 28.

Israel’s tax rates are the highest in the world except for Denmark, according to the Organization for Economic Cooperation and Development.

Helping Reduce Emissions

In its first five years (2009-2014), the government incentive program helped increase the proportion of new cars in the lowest pollution grades to 83 percent from 19 percent and reduced average carbon dioxide emissions per car by 21 percent, according to an OECD report in June 2016.

From 2009 to 2015, the percentage of hybrids among all passenger vehicles imported to Israel rose to 3.6 percent from 1.5 percent, according to a 2016 report from the Israel Tax Authority.

Toyota Israel-Union Motors said the tax reductions had helped spur a steady rise in the sale of hybrid cars. In 2016, the company sold 8,824 of the 15 Toyota and Lexus hybrids it imports, compared to 1,678 in 2009, and it expects sales of those models to increase, Managing Director Ran Danai told Bloomberg BNA in an Oct 2 email to Bloomberg BNA.

Hybrid vehicles require two engines, gasoline and electric, plus expensive batteries to power the electric engine.

“This combination makes the vehicle cost significantly more,” Danai said. “However, in Israel the tax incentives create equality between a regular engine vehicle and a hybrid” and “would enable Israel to increase the number of fuel-efficient and lower-emission vehicles, hence reducing Israel’s dependency on oil.”

Disagreement Over Incentive

Not everyone agrees the tax incentive will be enough to convince all drivers to move away from traditional vehicles. Hybrids in Israel still are generally more expensive than their pure gasoline equivalents, but some drivers feel that gap is bridged in a year or two by the lower fuel and maintenance costs.

Henry Kaye, a retired IBM executive in Ashkelon, bought an all-electric, zero-emission Renault Fluence ZE from Better Place Inc., the Israeli-led company that went bankrupt in 2013 and left some 900 Israeli drivers with cars powered by batteries they could no longer swap for fresh ones.

Even with the tax break, the Renault cost 20 percent more than a gasoline-powered Fluence. “So there was in fact no incentive to take an electric car—there was a disincentive, because it was the same body but you were being penalized for taking electric,” Kaye told Bloomberg BNA.

Even so, he still drives the car and rejected a buy-back offer from Renault. “I thought it was a good idea. I still do. It is the future. Electric cars are the future,” he said.

To contact the reporter on this story: Matthew Kalman in Jerusalem at correspondents@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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