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(photo credit: Courtesy Photo)
Finance Minister Avraham Hirchson on Tuesday appointed a committee to examine the value of company cars leased by employees in response to a proposal by tax authorities within the Ministry of Finance to raise the assessed value of leased cars.
The committee will be led by Finance Ministry Director General, Yossi Bachar until January when his successor in that position, Yarom Ariav, will take over.
Authorities contend that leased cars are an undervalued benefit given to employees by their companies. By raising the value of the cars, authorities will be able to collect a higher tax from those employees taking advantage of this popular company perk.
Although the exact amount by which the tax could increase is still under debate, some of the suggested numbers would raise the tax by more than double the amount currently paid by employees.
"It has been an open secret that the actual amount [of tax] is less than the benefit," said Eli Clark, a consultant with Profile Investment Services, in a recent interview. "There is no question that the tactical value of having one of those cars far outstrips what you are paying."
Clark explained that most leasing arrangements entitle an employee to free maintenance, gas and even regular car washes. "Basically, all the government wants to do is bring the numbers in closer conformity with economic reality," he said.
Such high increases, however, could have a significant impact on those who currently benefit most from the service, notably leasing companies, company employers and their employees. Hi-tech companies, some of the largest providers of company cars have thus far indicated an unwillingness to share in the tax burden with their employees.
"We have a compensation package for each employee and we will absolutely not take the burden of the tax," said Niv Kochav, financial controller of NDS, a Jerusalem-based hi-tech company with more than 1,000 employees, 35 percent of whom currently take advantage of the company's car leasing program.
With more than 250,000 leased cars on the road today according to the Israel Motor Vehicles Importers Association, Israel's top car rental companies stand to lose out if employees choose to buy cars instead of leasing or decide to forgo having a car altogether.
Eldan and New Koppel, two of Israel's largest car rental companies have more than 60% of their fleets invested in leasing programs. Both companies have said they are waiting until the government decides to move forward before making any decisions about their future plans.
"It really depends on how much they are going to raise the tax," said Haim Baral, a sales manager for New Koppel. "If it is going to be a reasonable rise, I don't believe it will be an earthquake for the leasing market, if they multiply it by three or four times, it is going to be a big problem for employees and us."
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