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Tax Benefits to Encourage the Use of Hybrid and Electric Vehicles

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Tuesday, May 15th, 2012

Minister of Finance Dr. Yuval Steinitz has decided to grant additional tax benefits for vehicles with alternative (hybrid or electric) drives, with the aim of continuing to promote the market penetration of these vehicles.  The Minister of Finance’s decision was made as part of the Tax Authority’s policy of promoting the use of environment friendly vehicles by means of tax incentives (“green taxation”).

According to the present act that has been formulated at the Israel Tax Authority, the purchase tax rate on electric vehicles will be reduced from 10% to 8% in 2012-2013, and the purchase tax rate on hybrid vehicles will remain 30% in the year of 2013, instead of the planned tax increase to 45%. The Minister has also decided to grant, as a temporary order, a special tax rate on plug-in type hybrid vehicles (vehicles with an electric engine that is charged from the electricity grid and also has a conventional auxiliary engine), on which a 20% tax rate will apply until the end of 2013, with the tax rate increasing gradually to 30% in 2014, 45% in 2015, 60% in 2016 and tax at the full rate beginning in 2017 (as can be seen in Tables 1 and 2).

The decision to grant incentives to encourage the use of alternative (such as hybrid or electric) drive vehicles stems from the fact that this type of drive reduces, to the point of completely eliminating (in the long run), the emission of pollutants from the vehicles, pollutants that have an extremely significant effect on public health.The use of hybrid vehicles reduces air pollution by 50%, in comparison with gasoline vehicles.Beginning in 2016, the use of electric vehicles will reduce air pollution by 50%, in comparison with gasoline vehicles.  

The goal of the green taxation policy is to achieve, in the long range, equality in terms of taxation of all types of technologies, so that tax benefits will be granted solely on the basis of the vehicle’s pollution characteristics.Nevertheless, considering the high cost of the innovative technologies and the objective difficulties involved in the market penetration of an innovative product, it has been decided that at present, special benefits should be granted for alternative drive vehicles.

The new benefits will come into force as of June 1st and the cost of all the benefits is estimated at around NIS 130 million.

Table 1:Tax rates on electric and hybrid vehicles before the Minister signed the orders

Year

Emission-free

Hybrid

Conventional

2009-2012

10%

30%

83% net the tax benefit according to the green score

2013

45%

2014

60%

2015-2019

30%

83% net the tax benefit according to the green score

2020

83% net the tax benefit according to the green score

 Table 2:Tax rates on electric and hybrid vehicles after the Minister signed the orders

Year Emission-free

Plug-in

Hybrid Conventional
2009-2011

10%

30%

83% net the tax benefit according to the green score
2012-2013

8%

20%

30%

2014

 10%

30%

45%

2015

30%

45%

60%

2016-2019

30%

83% net the tax benefit according to the green score

2020 83% net the tax benefit according to the green score