Yesterday, the Ministry of Finance published its revised taxation schedule for vehicle purchases, which will come into force in January 2026. The main change is in purchase tax on electric vehicles, which will rise in January from a current rate of 45% to 52%, while the ceiling for the reduced rate (i.e., for the discount on the full 83% rate of purchase tax) will be lowered from NIS 35,000 to NIS 30,000.
The upshot is a substantial rise in the cost of buying electric vehicles, especially the cheaper ones, for which the tax benefit ceiling is significant. Nevertheless, the assessment in the vehicle market is that because of the fierce competition in the electric vehicle segment, and the fact that there are still very large stocks, the full effect will not be felt immediately and the rise in prices will be small.
For other types of vehicles, there will be a further NIS 750 reduction in the "green taxation" benefit given in accordance with a vehicle’s pollution level. The Ministry of Finance says that this move is intended "to subsidize the lower purchase tax rate on electric vehicles." This measure applies to gasoline, diesel, and hybrid vehicles, and it will raise the cost of buying them in 2026, especially small, cheap vehicles.
The reform that was shelved
The most surprising measure in the decision of the Ministry of Finance not to change taxation on private use of company cars with low pollution levels - electric, hybrid, and plug-in hybrid. The Ministry of Finance originally planned comprehensive reform in this area, including a substantial reduction in the tax benefit for usage of plug-in hybrid cars, and a rise in the rate of tax on private use of electric vehicles.
The tax benefit for private use of company cars (i.e., the discount on the assessed value of private use of the vehicle) is currently NIS 500 monthly for hybrid cars, NIS 1,130 monthly for plug-in hybrids, and NIS 1,350 monthly for electric cars. The benefit will remain at these levels in 2026, other than a revision in accordance with the CPI. The Ministry of Finance states, however, that "balancing fiscal action needs to be taken" as a condition for this.
The Ministry of Finance also proposes to make the "luxury tax’ on cars costing over NIS 300,000 permanent. Up to now, the tax has been defined as a provisional measure. It has been renewed annually since 2013.
Published by Globes, Israel business news - en.globes.co.il - on November 12, 2025.
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