Draft Order: Purchase Tax Reduction on Vehicles Imported by Indirect Importers

We would like to bring to your attention that the Ministry of Finance has published a draft order to amend the Customs Tariff and Exemptions and Purchase Tax on Goods Order, 2017 (hereinafter: the “Draft Order“) – Click here to read the Draft Order. The draft is open for public comments until August 6, 2025. The aim of the Draft Order is to reduce tax disparities, lower regulatory barriers, and promote competition in Israel’s vehicle market by reducing the taxes imposed on indirect (parallel) imports of vehicles.

Currently, the purchase tax on vehicles is calculated as a percentage (up to 83%) of the transaction value for customs purposes. According to the explanatory notes accompanying the proposed draft order, this method provides an advantage to direct importers, who purchase vehicles directly from the manufacturer at relatively low wholesale prices. In contrast, indirect importers—namely, parallel importers who purchase vehicles from manufacturer representatives abroad—pay higher prices due to brokerage fees paid to those agents. As a result, the purchase tax imposed on indirect importers is higher than that imposed on direct importers, making it more difficult for the former to reduce vehicle prices and compete in the market.

Under the proposed draft order, a new mechanism is introduced for calculating the purchase tax on vehicles imported via indirect channels. According to the proposal, a fixed tax amount will be set in advance for each vehicle category (prior to deductions for the vehicle’s “green score” and safety features, which will continue to be calculated individually based on the specific characteristics of each vehicle). The fixed tax will reflect the average purchase tax actually paid on such vehicles by all importers, without disclosing any confidential commercial data of the direct importers. In other words, instead of calculating the tax for indirect importers as a percentage of the transaction value for customs purposes—as is currently the case—the tax will be determined based on the average import prices of vehicles within the same price category. The draft order includes a table with ten price categories, each assigned a fixed purchase tax amount ranging from NIS 36,000 to NIS 88,000 (see table in the draft order).

Additional Notes Regarding the New Framework:

• The proposed order will apply only to indirect importers who are not also direct importers of the vehicle models covered by the order, and who have no ownership affiliation with direct importers.
• The scope of the order is limited to private vehicles only. It does not apply to vehicles that benefit from special exemption schemes (such as taxis). In addition, the order will not apply to indirect imports of electric vehicles, luxury vehicles with a list price exceeding NIS 300,000, private vehicles with a weight exceeding 3.5 tons, models for which fewer than 50 units were imported during 2024, or models with extreme valuation values.
• An indirect importer will be allowed to choose whether the purchase tax is calculated according to the existing regular framework or according to the new arrangement proposed in the order. However, if the imported vehicle model is not included in one of the categories listed in Annex 22 to the order, the purchase tax cannot be calculated under the new arrangement and will instead be calculated according to the regular method.
• It should be emphasized that the draft order has not yet been reviewed or approved by the Knesset Finance Committee and may still be subject to change. If approved, it is expected to take effect from January 1, 2026, as a temporary provision for a period of two years, until December 31, 2027.

This is a precedent-setting draft that establishes different tax rates based on the type of importer. Accordingly, it is advisable to wait and see whether it will be approved by the Finance Committee and withstand judicial review.

We remain at your disposal for any questions or clarifications.