The recent United Nations Climate Change Conference, COP 21 or CMP 11 culminated in the adoption of the Paris Agreement in December 12, 2015, a global agreement on the reduction of climate change. This represents a consensus of the representatives of the 196 parties that participated, including Israel. The agreement will apparently become legally binding if joined by at least 55 countries which together represent at least 55 percent of global greenhouse emissions.

The agreement calls for zero net anthropogenic (=human) greenhouse gas emissions to be reached during the second half of the 21st century. The parties will also “pursue efforts to” limit the temperature increase to 1.5 °C.

Prior to the conference, 146 national climate panels publicly presented draft national climate plans.

The OECD commented on Israel’s plans in “Israel – Economic forecast summary (November 2015)” as follows:  “The commitment to reduce CO2 emissions per capita by 26% before 2030 is welcome but could be more ambitious. Introducing a carbon tax would help to meet this objective in a growth-friendly way, and pursuing public rail transport development would also reduce the costs of urban congestion. The taxation of private cars should target their use rather than their ownership, and the tax breaks associated with company cars should be abolished.”

The OECD was a little harsh. Israelis hopes for widespread use of electric cars were dashed when Better Place filed for bankruptcy in 2013 after receiving $850 million in private capital. The firm was founded by Shai Agassi and the Israeli government announced its support back in 2008. And millions are continue to be invested in the Israeli public rail transport system in many parts of the country.

There is no carbon tax in Israel apart from the longstanding taxes on car fuel. Here’s what else there is.

Income Tax – Negative Progress:

On the on the income tax side, Israel has quietly backslided. The taxable usage value for company cars (Shovi Shimush) is currently by NIS 500 per month for hybrid cars. This is not so hot as the reduction for hybrid cars was better up to June 30, 2015 at NIS 560 per month.

The regular taxable usage values range from NIS 2,730 to NIS 10,540 per month, depending on the model of car – these are the amounts added to salary on the paycheck for the benefit of a company car.

So if you get a grade 3 car (usually 1600 cc) from your employer, a usage value of NIS 3,810 per month is taxed at your marginal tax rate in the case of a regular car, or NIS 3,310 in the case of a hybrid car.

Purchase Tax – Slight Positive Progress:

The Finance Minister, Moshe Kahlon, recently signed an Order aimed at encouraging the use of electric cars by reducing purchase tax on them to 10% until the end of 2017, according to an announcement of the Israeli Tax Authority (ITA) on December 24, 2015. In 2018-2020 the purchase tax rate is apparently scheduled to be 30%.

The ITA found that despite tax breaks for electric cars in 2009, their use has been sparse. This is attributed to the limited distance they can travel, the time needed to recharge them, the scarcity of re-charging points and the price of the cars due to the battery cost.

The ITA justifies these purchase tax reductions on the grounds that electric cars will pollute less, and reduce Israel’s dependence on imported fuel. But consumers are not familiar with electric cars. And most of all, purchase tax on cars currently stands at 83% less a reduction based on the degree of pollution. Hence the purchase tax reductions.

Comment:  

The purchase tax reduction seems like minor tinkering that will do little to meet Israel’s CO2 commitment, let alone beat it.

No successor to Better Place has yet emerged. Solar energy production is still limited due to restricted purchases by the Israeli electricity grid.

If Israel can meet homeland security challenges and solve water shortages, the next priority should be addressing the Paris Agreement ecological commitments.

As always, consult experienced tax advisors in each country at an early stage in specific cases.

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The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.