High-tech Workers Get to Keep Company Cars, and Most of Net Pay

The war over tax on company cars is over, and the hi-tech workers have won.

The war over tax on company cars is over, and the hi-tech workers have won.

Seen more broadly, middle-class households where the breadwinners receive company cars are the big winners after Israel's parliamentarians voted on the 2008 Economic Arrangements bill.

The victory is relevant to those grossing between NIS 8,000 to NIS 20,000 a month and who drive company cars.

The deal between the treasury officials and Stas Misezhnikov (Yisrael Beiteinu), chairman of the Knesset Finance Committee, simply compensates middle-class workers for the higher tax they have to pay on using a company car. In fact, the net pay of workers earning NIS 8,000 to NIS 20,000 a month will increase by NIS 120 to NIS 350 a month.

The budget law now going through parliament has the Finance Ministry allocating NIS 3.2 billion to cover the tax breaks for the middle class. That amounts to a cool billion shekels more than had been initially planned by the treasury chiefs.

The extra billion shekels in lost income for the government coffers will cause a 2 percent drop in marginal tax at wage levels of NIS 7,600 to NIS 16,380 a month, in gross terms.

In parallel with the tax breaks, from January 1, 2008, the treasury will be increasing the value of using a company car for tax purposes. The increase will come into effect in stages over four years, through to 2011, instead of three years as was initially proposed. Moreover, the increase in value will be less than had been envisioned by the tax reformers.

Salaries of workers who do not have the use of company cars will increase by NIS 52 to NIS 172 a month, from the start of 2008.

Company cars are divided into seven groups, depending on the value of the vehicle. Group 1 covers the cheapest models, and those in Group 7 are the most expensive.

The coordinated move of raising the value of use, for tax purposes, and cutting income tax, will change the net income of workers with company cars.

For instance, a household with two breadwinners, in which one drives a Group 2 company car, and who together gross NIS 20,000 a month, will pay an extra NIS 41 in tax each month.

In the case of two breadwinners, where one drives a Group 2 company car but they gross a combined NIS 32,000 a month, their net pay will increase by NIS 183 a month.

Take Group 2, which includes the likes of Ford Focus and Mazda 3 cars.

The value of use is being hiked from NIS 1,330 to NIS 2,450 a month, gradually over four years. Originally the treasury had wanted to raise the value of use to NIS 2,770 a month.

The agreement approved by the Finance Committee reduces the increase regarding Groups 1 through 3, in exchange for a greater income tax cut.

Critics of the valus of use reform argue that it will give car leasing companies control over the car marketing sector. They also see this deal as benefiting the well-off at the expense of the poorer sectors of society.