Hirchson to Put Off Company Car Tax Hike Decision

After two long months of discussion, there is still no decision on raising taxes on the use of a company car, or increased value of use. Finance Minister Abraham Hirchson has decided to delay the decision and subject it to hearings by representatives associated with the vehicle sector. According to estimates, this step will delay the final decision by at least one month.

Hirchson made a decision to get input from all entities associated with the vehicle sector in Israel before making a final decision, in light of the heavy pressure that accompanied the tax authority's recommendation to increase taxation on company vehicles. The finance minister has not yet decided on the composition of team that will hold the hearings, nor who will head it. It is expected that a senior official from the treasury will be chosen, possibly even the director general or the head of the budgets department.

The team to be assembled will hold a series of meetings to hear from all parties involved in the decision to increase the tax. These include the ministries of transportation, national infrastructures (to guage the effects on road accidents due to the quality of vehicles on the road), and environment (to assess the effects on air pollution). In addition, the team will get input from vehicle importers, leasing companies, union garages, and possibly representatives of the Israel Bar Association and the Institute of Certified Public Accountants in Israel.

It is estimated that the hearings will continue for weeks at least, resulting in a delay of a final decision by a month or more. It should be noted that approval of an increase in the value of use involves only an amendment of ordinance, that is, only a single hearing in the Knesset Finance Committee in needed to make the change. The delay is now caused by the Finance Ministry itself, which has not passed the proposal to the Finance Committee.

Since the decision to hike the value of use is expected to reduce the use of leased cars by employees and employers, leasing companies are lobbying intensively against it. Objections have also been voiced by employees who enjoy the benefit of a company car, and who will be directly affected by the increased taxation.

Additional claims have been made that the tax is directed against the middle class, and will result in fewer new vehicles in Israel, and thus adversely affect air pollution levels and the number of road accidents.

On the other hand, it has been claimed that the use of a company vehicle is a benefit enjoyed by only 10 percent of all employees in the national economy, making it a non-egalitarian benefit. It is also claimed that the tax benefit has resulted in a distortion in the vehicle sector and an unreasonable and uneconomical increase in the number of leased vehicles. Moreover, it has been maintained, leased cars are usually of low safety standard, and actually aggravate the road safety problem.

The tax authority's main assertion, however, is that the issue is one of a tax distortion that costs the economy about NIS 2 billion annually, and that much wiser use could be made of this money. Among other things, the tax authority has suggested that the finance minister use the revenue from the increased value of use to cut taxes for the entire middle class in Israel.

A finance minister spokeswoman responded, saying that "the Ministry of Finance is holding discussions on the value of use. The Minister of Finance is receiving input from various entities from within the treasury, and will then hold a hearing for all extra- and intra-ministerial bodies. Only then will a decision be reached."