MKs Targeting Car Tax Reforms

A number of MKs propose reducing the tax increase on company cars for 80 percent of workers. The MKs want to limit the tax increase for cars in the second tax bracket, known as Group 2, thereby effectively halting Finance Minister Abraham Hirchson's funding for social reforms.

The Group 2 cars are the most popular in Israel, making up 80 percent of the 150,000 cars in all the leasing company fleets.

Group 2 cars make up an estimated 60-65 percent of all the taxes on vehicle usage by employees. Therefore, reducing the tax rates on this group will seriously harm the additional amount of revenues envisioned under the reforms Hirchson announced yesterday, which were earmarked for narrowing social gaps.

The question is whether the MKs' proposal will change the reform in car taxes - and the answer is not yet clear. Sources from the automotive industry said yesterday that they expect the reform to be passed in its original form, both in the Cabinet and in the Knesset Finance Committee.

One senior automotive industry official said: "The MKs' proposal is a joke, it will only create another distortion since it will lead customers to choose a car based on tax considerations."

However, politicians seem to think that the proposal actually has a very good chance of gathering wide support in the committee. The proposal - cloaked in the guise of a social reform that will help the middle classes - has gained the support of employers, as well as several large leasing companies, and is likely to bring about a change in the figures presented by Hirchson.

The problem is that if taxes are raised by less than what the treasury proposes, the funds to complete the other parts of the reform - a negative income tax, reduced tax rates, and mandatory pensions - will have to come from other sources.

The heads of leasing firms, representatives of the Histadrut Labor Federation and the Manufacturers Association have opened a campaign against the rise in the car usage taxes.

In particular they are targeting the Group 2 cars such as Mazda 3, Toyota Corolla and Ford Focus and trying to convince members of the Knesset Finance Committee to support them.

The heads of two large leasing firms, Albar and New Koppel, met with MKs yesterday in the Knesset over the matter, along with the companies' lobbyists. They will hold more such meetings in the near future.

The leasing companies plan to claim that the changes will harm the middle class.

Yehuda Talmon, who is head of the organization representing self-employed workers said that the tax reforms, both on vehicles and mandatory pensions, would cause the loss of 100,000 jobs, due to the additional salary expenses.

Zevulun Orlev of the National Religious Party called to reduce the tax by 15 percent for those who do not drive on the Sabbath, and to lower the tax for hybrid vehicles. Orlev drives a Honda hybrid provided by the Knesset and leased from New Koppel.

The Cabinet will be asked to approve the entire package of reforms on Sunday. However, the increase on taxes for car usage will be brought to the Finance Committee soon without waiting for the other proposals to be finalized and legislated.