Purchase tax of 93 percent, added to value added tax (VAT) and 7% customs duty (for a vehicle that does not come from the European Union or the US) boost the price of a car purchased here to twice the norm in Europe. The increase in the number of vehicles in Israel is relatively low: about 2% a year, half the accepted rate in the OECD, and the level of motorization is low, 300 vehicles per 1,000 residents. At the end of 2005, vehicle purchase tax was reduced to 89% but the effect was relatively small, though the regular breaks given for safety features were cut in half from NIS 4,200 to NIS 2,100. With the start of 2007, the second tax decrease goes into effect; a "full" decrease to 84% and, yes, a vehicle that is equipped with more than two airbags and an ABS (anti-lock braking system) will receive an additional benefit. The tax reduction process will continue until January 1, 2010, and will reach a tax rate of 72% - a 24% reduction. The reduction in tax lowered the threshold prices in usage groups on January 1, 2007. This required the importers to pass on the savings to consumers, especially in models on the lower price borderline of the usage group, mainly in the 2 and 4 usage values (family and large family models), which star in vehicle fleets. No less important is the fact that the reduction also lowered the price of used cars. Increasing the benefit for safety features beyond the minimum will spur importers to import safer vehicles, including the relatively stripped down "vehicle fleet model." In 2008, the benefit on minimal features will be reduced and advanced systems like ESP (electronic stability program) will be worth more. "A much more substantial reduction, with a significant increase in the price of fuel in favor of renewing the fleet and fewer trips is not desirable," says Tax Authority Deputy Director General Boaz Sofer, the man responsible for (among other things) vehicle taxation. "There is currently no real, effective alternative in mass transit. This would hurt mainly the periphery, and a proper solution is managing demand through congestion fees." Now it's possible alone Personal import of a vehicle has been possible for years, but in practice it did not pay, due to the heavy taxes. On January 1, 2007, the Finance Ministry's Tax Authority published a notice that the calculation would be done according to an invoice, so long as it is reasonable. The impact on regular passenger cars, which are sold at low prices and whose profit margins are low, would be negligible. In contrast, personal import of an expensive vehicle, on which profit margins are high, would become much more worthwhile. The feasibility of personal vehicle imports from a previous year, or of a vehicle that was replaced by a new model, would increase even more, especially with a reduction of tax according to the vehicle's age (which is limited to two years). And what about parallel imports? "If the entry by additional importers does not provide an advantage to the end-consumer - it's not interesting. As of now, the matter is not moving," Sofer responds. Contrary to the transportation minister's position, and despite the Treasury's promises, compulsory insurance fees for two-wheeled vehicles rose on January 1, 2007. The claim by Insurance Commissioner Yadin Antebi that such insurance is a "consumer product," and therefore its value should be determined by regular actuarial considerations, is strange given the nature of the Road Accident Victims Compensation Law and in light of the fact that the law requires insurance. Raising insurance by 25% for scooters (and more for those used commercially) is liable to reduce their use in a dramatic way. A huge public of salaried employees is expected to pay more tax on a vehicle that it receives from work. Those who receive a vehicle from work pay income tax according to usage value. Thus, for example, a Group 2 vehicle is calculated to add about NIS 1,330 to a salary, of which the employee pays about NIS 800. In practice, this price is three times lower than the expenses the employee would pay on a vehicle he owned. The result is huge vehicle fleets and dominance of the vehicle purchasing market by the operational leasing companies (60-70%). The leasing companies receive significant discounts on the vehicles they buy (10-20%), and this influences the importers' ability to offer a reduced cost vehicle to a single customer and dominance regarding second-hand car sales. All this is slated to change. More than 100,000 users will pay more tax on the vehicles they receive. Those who stand to gain include the state treasury, private customers and the principles of equality. Losers include salaried employees who receive cars from work and the leasing companies. There is no need to worry about the importers. "No doubt, the changes will have an influence on the private car market in Israel," says Yaki Enoch, chairman of the Vehicle Importers Association. Opposition to this comes from all directions: Representatives of the manufacturers, hi-tech company managers, leasing company owners, more than 100,000 employees, safety officers in the aforesaid companies, and a number of members of Knesset. A committee headed by outgoing Finance Ministry Director General Yossi Bachar is currently holding a hearing. "The subject will be closed in a short time," Sofer says. "In the short-term, there will be a shock, but the market will reset itself within a year with a decrease of 15-20% in the size of the fleets." Finance Minister Avraham Hirchson will decide within a month, and the question will be only at what pace the benefit will be canceled, and when. Europe required a transition to Euro 4 emission standards back in October, while in Israel trucks are being required to do so as of January 1, 2007, and buses on April 1, 2007. In other words, heavy and commercial vehicles entering Israel will be less polluting. There may be a problem with SCR (Selective Catalytic Recirculation) technology, which uses an additive called AdBlue. For the technology to work, a liter must be poured in about every 100 km. The price is about half the price a liter of diesel fuel, but Israel has its own way of handling things. Changes in consumption habits In another three months changes will go into effect regarding driving and vehicle licenses. The result will not be immediate, but the impact is clear. The changes will not harm those who already have a license, but in the future they will have an influence on usage, buying and employment habits. The changes create new and parallel groups regarding driving and vehicles that are marked in Latin letters, and are identical to what is accepted in the EU. In a two-wheeled vehicle, the lowest license ranking, A, will be valid up to a 125 cc-engine, instead of a 50 cc-engine as is currently the case. This will cause them slowly to disappear, due to a plunge in the price of used vehicles. Regarding commercial vehicles, those holding a Class 02 (currently B) license will be permitted to drive a vehicle of up to 3.5 tons, instead of 4 tons. In other words, a commercial vehicle above that line (and up to 4.5 tons, where there is no taxation) will be sold less and less, with the impact being felt mainly in US 3.9-ton pickups and vans. The light truck license will fall from 15 to 12 tons. Over a period of years, 15-ton trucks will disappear in favor of small ones. This is preferable from the standpoint of reducing fuel consumption and pollution. "These regulations," Enoch says, "will significantly influence the salaried employee market in driving and commercial vehicles only in another three years." The changes that occurred with the canceling of tax breaks for light commercial vehicles increased purchases of passenger cars, but there was also movement in the direction of heavy, 3.5-ton commercial vehicles, which are still recognized for VAT purposes and zero use value. And it is certainly possible that the trend will increase. At the end of 2007 tax regulations that negatively impact on serial environmental polluters are supposed to be published. Even now, gasoline-electric hybrids, like the Honda Civic and Toyota Prius, receive tax breaks. However, the method will be comprised in such a way that the level of pollution will be reflected in the price. The Finance, Transportation and Environmental Protection Ministries are leading the move. Previously, new models came out annually, and in Europe, and therefore in Israel as well, the model year began in September. Now, models are not changed every year, and if they are it happens during the year. In Israel, it was determined that the model year can begin on May 1 of the previous year, so that only a third of the model's life was in the registered year. Toward the end of 2007, regulations will be announced that will link the model year to the civil year; 2008 models that arrive in May 2007 will receive a greatly extended lifespan, but in December that will end. Reference to real ownership time will be the only thing that remains.