Finance Ministry Scrutinizes Business Mileage Expenses

The finance minister, Abraham Hirchson, will review today recommendations, made by a professional ministry team, that would raise the cost of cars provider by employers.

One of the recommendations, TheMarker has learned, is to lower the number of kilometers permitted to be written off as a business expense for such private vehicles. As a result, the costs of car usage recognized for tax purposes could turn out to be quite low.

Today the Israel Tax Authority (ITA) simply allows every kilometer traveled annually, over the first 9,900, to be listed as being for business purposes.

In other words, the taxman assumes that the average amount of personal travel undertaken in cars provided by employers to their workers is 9,900 kilometers. But this number does not match the figures collected by the Central Bureau of Statistics (CBS). According to the official numbers, the average car in Israel travels 18,000 kilometers a year.

While the CBS does not differentiate between business and private use in its figures, the treasury has studied the matter - and discovered that the great majority of such use is for private purposes.

In addition, the Supreme Court has ruled that car travel to and from work is considered a private trip, and cannot be considered a business expense, providing further support for the treasury's conclusions.

The treasury considers the 9,900-kilometer figure to be arbitrary and unrealistic - and one that needs to be corrected. Expectations are that the ministry will lift the bar for trips to be considered business expenses to between 15,000 to 17,000 kilometers a year.

Drivers who put on less kilometrage than that will find that they are limited in the expenses they can write off for their cars.

They can use an alternate calculation, based on 25 percent of actual costs, but that is also considered low and unrealistic. It is likely that in response the treasury will raise this to 30-40 percent of actual costs.

Others who will be hurt by the change are those self-employed for whom such a change would change their tax status, due to a significant drop in their allowable expenses.

The effect on employers would mean a reduction in their business expenses recognized for tax purposes; however, this could partially be offset by the planned increase in the taxes paid by employees on such vehicles - which would decrease employers' expenses.

In practice, the double whammy of both reduced mileage for business purposes and higher tax brackets for users of the cars, would push most employers over the limit allowed for writing off such expenses, and their total costs would rise too.

Estimates are that the move would increase tax revenues by NIS 2.5 billion.