Director of Customs and VAT Dept. Eitan Rov: Possible reduction in purchase tax on new cars to be explored. The current tax on private cars totals 95% of the price.

Good news for Israeli drivers: the price of new cars will decline by approximately 10% within two years due to a reduction in purchase tax. In addition, future plans include opening the market to new importers to join the large car importers currently operating in the market.

The Knesset Economic Committee yesterday discussed the opening of the car market to competition. Eitan Rov, Director of the Customs and VAT Department in the Finance Ministry, said during the discussion that “taxation on cars in Israel is high and should be reduced. Unfortunately, the 2005 budget will not allow a reduction in customs but we will explore the possibility of reducing taxes on new cars in the 2006 budget”.

Rov emphasized that this is part of a general move designed to increase competition in the car industry. Rov told the committee that the introduction of additional importers would facilitate a reduction in prices and reduce purchase tax, leading to a drop of up to 8% in car prices. This is the official statistic but a senior Finance Ministry official estimated that the reduction in purchase tax would, in fact, cause a 10% decline in prices.

The current purchase tax imposed on private cars comprises 95% of its price. Car importers are obviously opposed to the reform. Zvi Pollack, CEO of Champion Motors said: “We support the opening of the market to additional importers as long as these importers are obligated to provide warranties to consumers that would enable service provision. The reforms will hurt our pockets but I don’t know by how much”.

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