Treasury revisits travel tax on electric vehicles

The ink is hardly dry on the previous draft Economic Arrangements Bill to accompany the state budget, and last week a new draft was published, containing measures affecting drivers. The document reveals the concern of the regulator at the rate at which electric vehicles are coming into Israel: “The rapid influx of electric vehicles presents significant challenges that must be dealt with. First of all, to remove barriers to their entry, and secondly to reduce the economic damage liable to arise from unregulated introduction of electric vehicles.” In 2022, 27,000 electric vehicles were sold in Israel, 146% more than in 2021.

Some of the proposals in the latest draft bill are familiar from its predecessor, others have been revised, and some are new.

Travel tax: Slim chance of being implemented

The Economic Arrangements Bill reintroduces the proposal to impose a travel tax on electric vehicles. Under the current proposal, a tax of NIS 0.15 per kilometer would be imposed. The official justification for such a tax has not changed from the previous draft bill: the growing demand for electric vehicles is causing various kinds of damage, such as extra road usage because of the low cost per kilometer in comparison with gasoline-fueled vehicles, which the state needs to restrict.

The real reason, the industry believes, is the need to restore to the public purse some of the tax on fuel that it will lose as a result of the rapid switch from gasoline-fueled vehicles to electric ones. Revenue from the fuel excise alone in 2022 amounted to NIS 21.4 billion.

The new draft bill is different in several respects from the previous one. For example, it contains a deadline for introducing the travel tax – January 2026. In addition, it sets the tax at NIS 0.15 per kilometer, index-linked, and the method for calculating it: “The tax will be paid on every kilometer traveled on the basis of distance traveled per the vehicle’s computer, and in accordance with a check carried out as part of the annual roadworthiness test.”

It is also proposed that collection should be through monthly advance payments, and that an external contractor should be appointed to carry out the monitoring and collection for the Tax Authority.

In addition, under the draft bill, the state will publish an exemption from travel tax for all “non-private” electric vehicles, such as taxis and commercial vehicles, and for two-wheeled vehicles, and others, and will set up a monitoring team to determine the level of the travel tax in accordance with the amount of the decline in revenue from the fuel excise. So if the penetration of electric vehicles is ahead of the forecasts, it could well be that the rate of the travel tax will rise substantially.

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The idea of taxing travel in electric vehicles is not unique to Israel. Governments all over the world are concerned at the potential loss of a rich source of revenue in taxes on fuel, and the EU is currently working on comprehensive provisions for imposing taxes on electric vehicles in various ways, from an environmental tax on batteries to a tax on particle emissions stemming from greater wear on tires because of the extra weight of electric vehicles.

From past experience, however, there is no certainty that a travel tax will actually materialize. At the current rate of sales, by 2026 there will be between 180,000 and 220,000 electric vehicles on Israel’s roads, a significant proportion of them in the government vehicle fleet. Such a mass of users, especially if they are from the economically stronger strata of the population, could prevent the imposition of a travel tax.

Incidentally, this is what is currently happening to the congestion fee in the Gush Dan area, that was supposed to come into force in two years’ time and that has been legislated. Right at the beginning, the implementation of the tax was postponed for three years, and this month a new bill was proposed by MK Moshe Gafni (United Torah Judaism) to cancel the fee altogether, because of “the harm caused to weaker sections of the population”. Add to that the technical complexities, and you get a good idea that is stillborn.

Bottlenecks in expanding charging infrastructure

The new draft Economic Arrangements Bill also reveals that the regulator is concerned at the fact that the rollout of charging stations is not keeping pace with the growth of the electric vehicle market. The bill therefore repeats earlier proposals deigned to enable charging stations to be set up in multi-occupancy residential buildings, even when some of the residents object, and a fast track for installing charging stations in parking lots of non-residential buildings.

This is in addition to an exemption from a license to supply power for some of the power providers to charging stations, at the discretion of the Electricity Authority; a change in the Planning and Construction Law to allow the purchase of land for transformer installations, which are vital for supplying electricity for vehicles; and the formulation of a plan by the Ministry of Finance for the rapid deployment of charging stations in public spaces within six month; and other proposals.

The main problem with all these proposals is that they were supposed to have been implemented two years ago, and by the time all the legal work on them is complete, it is estimated that another 80,000 electric vehicles will be on the roads.

Published by Globes, Israel business news – en.globes.co.il – on January 30, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.