The Rising Cost of a Company Car

The cache of driving a company car is not what it used to be.

Until recently, it was considered the No. 1 perk − a measure of an employee’s importance to the firm in the form of a late-model vehicle with free gasoline.

But in recent years, that’s been changing, reports Haaretz.

Leased vehicles have gradually become more expensive, as they are subject to increasingly heavy taxes, with the value for tax purposes more than doubling since 2008, from an average of 1,500 shekels a month to 3,200. That runs parallel to the increase in the price of a family-sized car, from an average of about 111,000 shekels to 127,000 today. And more price hikes are foreseen with the change in the green tax on vehicles.

Employers are also paying more for gasoline. Since 2009, the price of gas has risen 47%, such that the average fuel cost has jumped from 30,577 annually to 40.699, according to an industry estimate.

Yet, the rate of corporate leasing of cars hasn’t dropped. The number of corporate-leased vehicles has held steady at about 300,000 over the last few years.

“Employees are still using company cars. Fewer than 2% return them and buy their own instead,” says Yigal Raskin, a member of the board of the Israel Transportation Managers organization. “There are even cases of employees returning their company car and then asking to get it back because a company car brings peace of mind.”

An executive in the leasing industry explained the continued popularity of company cars: “When the price of gas is rising, the usage value of the car becomes lower. The increase in usage value was set at a time when gas prices were a lot lower.

“A leased car is a tax shelter on gasoline.”

However, Boaz Sofer, a former duty director of the Tax Authority responsible for the reforms in the usage value assessment, contends there has been a decline in auto leasing.

“At a time when the number of cars in Israel is growing, the number of those leased has been stagnant,” he told Haaretz. “The increase in the usage value has turned the tide and the change has just begun. We raised the usage value to a level where people think twice if they want to take a company car. Only those who do a lot of travelling or actually use the company car for their work choose to take a company car.”

In an effort to discourage excessive use of company cars and reduce the power of the leasing companies, the Finance Ministry’s budget division proposed revamping usage value by splitting it into two parts: One for the actual cost of running the vehicle, which would be lower than it is today, and a second payment for the value of free gasoline provided by the employer. The aim is to boost state tax revenues, but the proposal has encountered opposition from, among others, the Tax Authority, which argues against it because of the difficulty it envisages in collecting taxes pegged to kilometerage.