Treasury drops EV travel tax

As first reported by "Globes", the travel tax on electric vehicles will not be imposed in 2026, and will probably be canceled altogether. This emerges from a session of the Knesset Finance Committee this week. The representative of the Ministry of Finance told the committee that the travel tax was meant to serve as a budgetary source to finance continued tax breaks on electric vehicles, but, as he said, "The travel tax is not progressing… the state said that there was a connection between the travel tax and purchase tax on electric vehicles… if we want to continue with the [reduced] purchase tax or any other measure that is not 83%, then a budgetary source has to be found to match it… the minister of finance instructed us to formulate alternatives.. we will finish doing so this week and present them to the minister next week."

A travel tax on electric vehicles was first proposed in 2023 as a way of compensating the state for the loss of revenue from fuel excise because of the rapid switch to electric cars. It was included in the budget forecast in April 2024, with the aim of starting collection in January 2026. The tax, at NIS 0.15 per kilometer, or about NIS 2,500 annually per vehicle on the basis of average distance travelled, was due to bring in revenue of NIS 1.2-1.5 billion in the first year, with annual revenue growing to about NIS 2.4 billion by 2028.

The Ministry of Finance is estimated to have spent millions of shekels on preparations for collecting the tax, such as on developing software for the collection system, but the tax met with fierce political opposition. It is not clear how, if at all, the Ministry of Finance will finance continued tax breaks on the purchase of electric vehicles, which are due to be renewed in January 2026.

If no alterative sources are found, purchase tax on electric vehicles could jump from 45% to 83%, the full rate of purchase tax on all other types of vehicles. Sources in the vehicle importing industry say that even if the tax does rise sharply in January, the impact will not be immediate. This is because many importers are still stuck with stocks of thousands of electric vehicles of popular models, currently being offered at discounts of tens of thousands of shekels.

Published by Globes, Israel business news - en.globes.co.il - on November 6, 2025.