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The Knesset Finance Committee approved a proposal on Monday to update the pricing models for motor vehicles, a move that is expected to bring a general reduction in car prices.
The proposal, which was presented by the Finance and Transportation Ministers, has been forwarded to the Knesset plenum for final approval, and forms part of preparations for the launch of the auto industry's 2007 model year on May 1.
"For the first time, there will be a reduction in the price brackets, in light of the recent decision to decrease the purchase tax on cars," the Israel Tax Authority said.
Boaz Soffer, deputy director general of finance and development at the Israel Tax Authority, explained that the pricing groups are updated every year in time for the new model year, and is done so according to the exchange rate depreciation or appreciation that was experienced over the year.
"This time, we had to add another tax component in the calculation due to the changes in sales taxes on new cars implemented in December last year," Soffer said.
Sales tax on new cars was cut to 89 percent from 95% in December as the first stage of a program to bring the tax down to 72% by 2010.
As a result, the upper limit on each group will drop between 1.1% and 2.8% this year, depending on which of seven cost categories the car falls in.
Soffer explained that because the price brackets fell, importers will want to declare in a lower price category, and therefore cut prices on vehicles costing just above that limit, thereby causing a ripple effect on the price of other cars. On the most popular middle price range cars, the decrease is expected to be between NIS 1,500 and NIS 5,000.
The most immediate effect for consumers will be for leasing customers who will see a reduction in their tax payments, which are based on the price declared by the importers.
"Israel has among the highest tax rate on new cars," Soffer said. "We see now that the reduction in taxes will result in a bottom line saving for the consumer."