Purchase Tax and Excise

Purchase tax is an indirect tax under the Purchase Tax Law (Goods and Services), 5712-1952. It is levied on the import and on the local manufacture of goods specified by order, at the same rate in both cases. Fuel produced in Israel is subject to excise instead, under the Fuel Excise Law, 5718-1958. Most disputes concern the classification of the product, the price on which the tax is calculated, and diesel excise refunds.

Send us the payment demand or the assessment, and we will check the deadlines.

The most common situations involve importers, local manufacturers, and large-scale diesel consumers:

• Customs reclassified an imported product to a tariff heading subject to purchase tax, or to a heading with a higher rate.

• You fill, package, or assemble a product in Israel that is subject to purchase tax, and you are not sure you have registered as a dealer for tax purposes.

• You received a purchase tax assessment on local manufacture.

• Your application for a diesel excise refund for a heavy vehicle, engineering equipment, or a factory was denied.

• The Tax Authority claims that diesel for which an exemption or refund was granted was transferred to another party or used for a different purpose.

• You are planning to import a new product line and want to know the applicable tax rate in advance.

The Minister of Finance determines by order which goods are subject to purchase tax and at what rate. According to the Tax Authority, the list includes, among others, alcohol and alcoholic beverages, tobacco, motor vehicles, vehicle parts and accessories, and vehicle batteries. Purchase tax is a different tax from the acquisition tax paid on the purchase of real estate, which is explained on the Capital Gains Tax and Acquisition Tax page.

How the Tax Is Calculated

The rate is set as a percentage of the wholesale price, as a fixed amount, or both (section 3 of the Law). On imports, the wholesale price is the value of the goods under the Customs Ordinance, plus import duties and an additional percentage set by the Minister of Finance (section 4B). On local manufacture, the tax is calculated on the wholesale selling price. Rates change by order: the reduced purchase tax on electric vehicles, for example, rose from 45% in 2025 to 48% in 2026, after the Knesset Finance Committee approved the order in January 2026.

Classification

Where goods can be classified as either taxable or exempt, the Director may classify them as taxable. Where several taxable categories apply, the Director may impose the highest rate. This is provided in section 14 of the Law, which also addresses goods imported in disassembled parts.

Local Manufacture and Deadlines

A manufacturer of taxable goods registers with the National Purchase Tax Unit and files periodic returns, usually monthly, within 25 days after the end of the period, even in months with no taxable sales. Operations such as assembling a system of parts and reconditioning vehicle batteries are deemed manufacturing under the Tariff Order.

Under the Indirect Taxes Law, a demand for underpayment on imported goods may be issued within 5 years, and on other goods, such as locally manufactured goods, within 3 years.

Fuel Excise and Diesel Refunds

Excise is imposed by order on fuel produced in Israel (section 2 of the Fuel Excise Law). The Minister of Finance may grant, by order, a full or partial exemption or refund for fuel used for a specified purpose (section 9). According to the Tax Authority, diesel refunds are available, among others, for industrial plants using diesel as combustion fuel in production, for engineering equipment, for commercial vehicles with a gross permitted weight exceeding 4,500 kg (and from 10,000 kg only for holders of a carrier's license), for buses weighing over 5,000 kg, and for agricultural tractors.

The user must prove that the diesel was used for the designated purpose and that it was purchased directly from a licensed dealer, and must file the application within one year of the date the tax invoice was issued (sections 9(c) and 9(d)). Anyone who transferred diesel for which a refund was received, or used it in violation of the law, is liable to a financial sanction equal to double the excise refunded (section 25A(b2)).

The channel for disputing the charge depends on whether the case involves an import, local manufacture, or excise, so that is the first thing we check:

1. You send us the payment demand or assessment, the import declarations or periodic returns, and the product specifications. For excise matters, also attach the diesel invoices and the vehicle or equipment registration records.

2. We check the deadline: 30 days for an objection to a local-manufacture assessment, 3 months from payment under protest on imports, and one year from the invoice date for a diesel excise refund application.

3. We check the classification under the order and the price basis: which tariff heading the product falls under, what the rate is, and whether the calculation included the correct components.

4. We file an objection, an appeal before the Customs Tribunal, or a claim, depending on the type of dispute, and request a meeting with the handling official.

5. If no agreement is reached, we proceed to court: an appeal under the VAT Law against a local-manufacture assessment, or an action under section 154 for imports.

Purchase tax and excise cases are handled by Adv. Udi Asa, who heads the firm's Customs practice. His area of expertise is indirect taxes, including customs duties, purchase tax, and excise. In 2023 he served as a director in the Indirect Tax department at KPMG Somekh Chaikin.