Less than two months before the end of the year, the Finance Ministry published the benefit-in-kind tax framework for company cars for the next year. The surprise: The Tax Authority left it unchanged.
In 2022, the tax amounts paid by recipients of company cars were most recently updated under a temporary order until the end of 2025. At that time, it was determined that recipients of a hybrid car would receive a discount of NIS 500, recipients of a plug-in hybrid car would receive NIS 1,000, and recipients of a full electric car would receive NIS 1,200.
The amounts are updated each year according to the inflation index, and in 2025, they stand at NIS 560 for a hybrid car, NIS 1,130 for a plug-in car, and NIS 1,350 for an electric car. The Tax Authority now proposes to leave them as they are, without further updates, meaning the amount will erode by about 3% according to this year’s index rate.
This follows previous considerations to cancel the benefit for plug-in cars or significantly reduce it, due to the fact that most car owners do not bother to charge them and use them as regular hybrid cars, without the tax benefit actually reducing emissions.
The Authority notes that the estimated annual cost to the state budget for this adjustment is NIS 260 million, which will require finding another budget item to cover the gap.
Again, it is proposed to set the benefit-in-kind incentives under a temporary order for three years, meaning until 2028.
According to estimates, about 250,000 Israelis receive a company car. The Tax Authority views this as additional income equivalent to 2.48% of the car’s new price. Thus, someone who receives a company car worth NIS 150,000 is considered by the state to receive an additional NIS 3,700 per month, from which tax is deducted according to the employee’s tax bracket.
At the end of the year, the purchase tax on electric cars is supposed to rise, from 45% to 52% instead of 83%. This follows the framework set last year, which relied on the intention to begin collecting congestion tax in central areas in 2026. The implementation of the congestion tax has been delayed and will not start before 2027, creating an additional law costing hundreds of millions of shekels in the state budget.
The Tax Authority is supposed to submit an updated framework to Finance Minister Bezalel Smotrich, including alternatives to the congestion tax. The 2025 tax increase is considered one of the reasons for the decline in electric car sales, and another tax increase would lead to further decline, contrary to global trends and Israel’s commitments to reduce its pollutant emissions.