Agreement reached on company car values

Increasing the cost for using a company car, according to some, will affect the leasing companies' near complete control of the car market.

car lease biz 88 298 (photo credit: Bloomberg)
car lease biz 88 298
(photo credit: Bloomberg)
Drivers of company cars will be pay more for the privilege beginning in January, following an agreement reached between Knesset Finance Committee Chairman Stas Meseznikov and Finance Ministry officials that will gradually raise the taxes assessed on company cars. The agreement includes a guarantee from Meseznikov (Yisrael Beiteinu) that his committee will pass through the Treasury's "social-economic package." Starting in the first month of next year, the "value of use" totals on corporate cars will begin to increase and continue to do so over the next four years, eventually rising NIS 1,120 to NIS 2,450. While the Finance Committee did not specify the additional amounts drivers of company cars will be paying, committee officials told The Jerusalem Post that payments over the first two years would be substantially smaller than those during the second two years. This, they said, was to allow employees to consider over a two-year period whether they would prefer to continue using the company car or try to negotiate a better deal with their employer. Value of use is an expression of the tax value for those who drive company cars and the added cost to the drivers of these cars will, by 2011, eventually amount to between NIS 200-270 in tax payments per month. The agreement includes only those cars classified as category B - those whose weight does not exceed 3.5 tons. Following the agreement, Miseznikov, who had protested the Finance Ministry's original plan to increase the value of use NIS 1,440 over three years, claimed that the blow to employees with company cars will be minor. "The Treasury unfairly targeted the middle class in seeking to increase the 'value of use' taxes by so much in such a short period of time," he said at a press conference announcing the decision. "I empathize with sales people, those who offer services and other employees who use a company car for work purposes 90 percent of the time - they do not need to pay more tax - but this is a fair decision." In return for the Finance Ministry agreeing to accept Meseznikov's 'value of use' proposal, the committee chairman promised that he would ensure that the social package of legislation proposed by the ministry would be passed by the Finance Committee. Included in the ministry's proposed legislation is a plan to reduce by 2% the direct taxes of employees who earn between NIS 7,600-NIS 16,380. According to Meseznikov, 70% of company car drivers earn a salary within these amounts, thereby lessening the blow to their net monthly wages. Additionally, the agreement will allow the Treasury to pass three pieces of legislation at the Knesset Finance Committee, including the negative income tax law, the mandatory pension law and the law for subsidizing day-care centers for children of working women. According to a Finance Committee official, the money to fund these programs will be funded by the increase in car taxes, which is expected to generate approximately NIS 2.2 billion. Increasing the cost for using a company car, according to some, will affect the leasing companies' near complete control of the car market. "While we don't expect the impact to occur within the next two years and don't expect a lot of immediate cancellations, we do think that the new reform will slow growth of leasing companies beginning in 2010," said Gadi Beeri, assistant director general of the rating company Ma'alot. Industry professionals, however, have said they don't expect the changes to slow sales. "I very much doubt that employees will hand over the keys to their company cars because they have to pay two hundred shekels more a month," said the general manager of one leasing company. "While no one wants these new regulations to come into force, we are certainly not panicking." The proposed legislation will now be sent to the Knesset plenum for second and third readings.