Israel Extends Excise Tax to Lubes

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In an effort to discourage tax-dodging mixing with diesel, Israeli officials signed an order last week to impose an excise tax on lubricants and solvents.

The tax, which was originally intended to take effect at the start of 2020, will assess a duty of 3 new shekels (U.S. $0.96) per liter on lubricants and solvents. It is scheduled to take effect in early December but still requires approval of a legislative committee.

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Israeli officials say the excise tax expansion is necessary because of the growing practice of diluting diesel with untaxed materials in order to reduce costs. The excise tax contributes significantly to the price of diesel, which averaged 6.27 shekels per liter in Tel Aviv last week, according to GlobalPetrolPrices.com.

According to an article on Israeli business news website Calcalist, industry sources estimate that 50 million liters of fuel substitutes are used in Israel and the Palestinian Authority each month. In addition to costing the government tax revenue, the practice poses risks to vehicles using off-spec diesel.

The government originally intended to apply the excise tax to lubricants on Jan. 1, 2020. The date was pushed back first to the middle of that year and then postponed indefinitely because of the COVID-19 pandemic.

Finance Minister Avigdor Lieberman and Energy Minister Karin Elharar co-signed an order last week directing the excise tax to be applied to lubricants and other fuel substitutes beginning early next month. The change must also be approved by the Finance Committee of the Knesset, Israel’s legislature. When first approved in 2019, the expansion of the tax was projected to raise 450 million shekels per year. Due to expansion of the practice of dilution, officials now predict the change will bring 1 billion shekels.

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