Israelis Buying Fewer Cars and Paying Less for Them

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Israelis are buying fewer automobiles and paying less for them because of two key reforms in the auto sector: raising the cost of company cars and offering tax reductions on environmentally-friendly vehicles. The trend was made clear in figures released on Tuesday by the Tax Authority, which showed that revenues from car-related taxes dropped 11.8% to NIS 8.2 billion last year, the second successive annual decline.

In fact, the impact the reforms had on automobile sales was bigger than the headline figure shows: The state's revenues from taxing new cars dropped 12.5%. On the other hand, tax from spare parts increased by 5.5%, the Tax Authority reported.

Tax officials blame the drop in new-car tax income to a 12.9% drop in vehicle imports to Israel in 2012. They attributed this large decline to the reform in assessing the tax value of company cars, valuing them at close to their real market value, which led to a sizable drop in vehicle acquisitions by company fleets. At the same time, the environmentally-friendly vehicle tax reform reduced the purchase tax on 82% of automobiles bought in Israel in 2012. Consumers paid reduced vehicle tax on these cars according to their level of emissions.

The government is expected to alter the structure of environmentally-friendly tax breaks following their unexpected widespread use by consumers. In the near future, more stringent environmental ranking are expected to be used for vehicles in assigning tax credits.

The price of used cars also dropped, according to the Tax Authority survey, due to competition with used cars sold from company fleets and low-polluting cars that became cheaper due to the tax credits. The Tax Authority also found that private vehicle owners drove 7% less in 2012, or 14,700 kilometer per year on average, compared with 2011. At the same time, those with company cars drove an average of 28,600 kilometers in 2012, 3% more than the distance they drove in 2011.

An Israeli parking lot. There are some 2 million cars on the road in Israel every day.Credit: Ofer Vaknin

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