Group: State Doesn’t Need VAT for Car Purchases

Cars brought on cargo ships, parked at the port in Ashdod. (Moshe Shai/Flash90)

Israel raked in a whopping NIS 40 billion in duties and taxes on car imports in 2016 – so the government can afford to reduce that amount, and doing so will reduce the cost of living significantly for families, according to the powerful Israel Chamber of Commerce. “The government should consider eliminating the Value Added sales Tax on the first vehicles purchased by families,” said Dan Carmeli, deputy director of the Chamber of Commerce.

Carmeli made the statement in advance of an annual conference on the car business in Israel, set to take place in Eilat this week. Carmeli said that the issue was very relevant, considering the efforts by Finance Minister Moshe Kachlon to lower the cost of living. While seeking to lower the cost of apartments for first-time home-buyers, as Kachlon was doing with various programs, was a positive effort, the Zero VAT program for car purchases was more practical, and would have a more immediate and positive effect on families’ bottom lines.

Israel’s vehicle imports hit a record high in 2016, and so did government proceeds from taxes associated with the sale and operation of vehicles. According to data compiled by the Finance Ministry, the government collected NIS 12.33 billion ($3.16 billion) in purchase taxes on vehicles, a whopping 50 percent increase over the amount collected in 2015.

Purchase taxes on vehicles averages about 120 percent of the cost of a vehicle. A total of 286,728 vehicles were imported into the country in 2016, 12 percent more than in 2015. The figure does not include the amount the government collected in Value Added sales Tax (VAT), currently at 17 percent and added on to the total of the vehicle’s cost, including the purchase tax.

It is that VAT payment that the plan suggested by the Chamber would eliminate. Under the plan, families or single parents with at least one child, whose head of household is 21 or older and whose income is NIS 136,000 or less, would be able to buy one car without the VAT payment. The exemption would kick in once every six years.

According to the Chamber, vehicles are no longer a luxury, but a basic need, used by families to get to and from work, school and shopping. The 17 percent reduction in vehicle cost would save families that purchase vehicles many thousands of shekels, but have a minimal impact on the proceeds, Carmeli said. “Heavy taxes make it difficult for households to get by, and the more we can lower taxes, the better for everyone,” he added.