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Funding for road construction and maintenance in Israel derives from both public and private sources.  Public funding is utilized for the development of interurban and municipal roads.  The state imposes indirect taxes and fees on transportation-related goods and services, including purchase, import, and value-added taxes on vehicles; excise taxes on gasoline; and a variety of vehicle fees such as an annual licensing fees, car radio fee, etc.  The construction and maintenance of interurban roads in Israel has been delegated to two government companies, the operations of which are partially funded by private sources.  In the case of one of these companies, such sources include the collection of toll-road fees from drivers.

I. Investments in Road Infrastructure

Funding for the development and maintenance of roads in Israel derives from both governmental budget allocations and private sources.

The total governmental budget allocation for roads reportedly amounted to approximately 6.4 billion New Israeli Shekels (NIS) (about $US1.8 billion) in 2013 and NIS 7 billion (about $US2 billion) in 2014.[1]  In providing funding for road construction and maintenance, Israel’s Ministry of Transportation, National Infrastructure and Road Safety (MTNIRS)[2] differentiates between interurban highways and municipal roads.[3]

This report provides information on funding sources for the development of road infrastructure and maintenance in Israel from both public and private sources.

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II. Interurban Construction and Maintenance

Interurban highway construction and maintenance in Israel is conducted by two government companies—Netivei Israel and Cross-Israel Highway (CIH).  Funding for the companies’ operations derives from MTNIRS allocations as well as from private financing and, in the case of the CIH, also from the payment of tolls by drivers.

A. Implementation

1.  Netivei Israel Ltd.

Netivei Israel – National Transport Infrastructure Company Ltd. is “a government-owned company that is responsible for the planning, development and maintenance of Israel’s interurban road network as well as railway development.”[4]  According to the Netivei Israel website, the company currently operates a program that is designed to “bring the periphery closer to the center of the country by networking intersecting roads and railways in the north and south.”[5]

BdiCoface, an Israeli business information group, describes the operating model of Netivei Israel as one that is “based on outsourced personnel along with salaried employees . . . . [Netivei Israel] regularly monitors, supervises and manages traffic over more than 7,000 km of roads, 1,200 bridges and tunnels and tens of thousands of traffic lights and lighting points.”[6]  BdiCoface lists the integration of the private sector in financing, planning, and implementing projects as one of Netivei Israel’s main objectives.[7]

2. Cross-Israel Highway Ltd. (CIH)

CIH is the second government company that is involved with the development of road infrastructure in Israel.  The company was established in March 1993 with the objective of paving the Cross-Israel Highway.  According to information posted on its website, CIH is engaged in promoting the paving of the highway, which extends for approximately 250 kilometers (155.343 miles) from Shlomi in the Galilee to the Negev Junction.[8]  The Cross-Israel Highway project is said to be “the first major privately financed project to be implemented in Israel, serving as an important experience for the government, lending institutions and the private sector, and setting the standard for future projects in Israel.”[9]

CIH reportedly offered to pave the central section of the highway as a toll road using a concessionaire to finance and pave the road, and to operate it for a period of thirty years.  After the expiration of this period, ownership of the highway passes to the state.  Accordingly, the Derech Eretz company was selected in an international tender as the implementing authority and the concessionaire of the Cross-Israel Highway on behalf of the state.  Derech Eretz is therefore responsible for monitoring the concessionaire’s areas of activities that are related to the toll road, including road construction, construction of interchanges, toll gates, cost of travel, methods of collection, road maintenance, etc.[10]

B.  Funding Sources

1.  Public Funding

The MTNIRS’s budget for development of interurban roads for 2013 and 2014 is composed of government appropriations, conditional expenditures, and authorizations to commit.[11]  While a conditional expenditure is an authorization for an expense beyond the approved budget expense and depends on receipt of income from nongovernmental sources, an authorization to commit allows the obligation of funds for a plan during the fiscal year, even if payment will be made in the coming years.  According to information posted on Israel’s Ministry of Finance website, this arrangement allows the government to operate within the framework of multi-year programs while being subject to adequate budgetary supervision.[12]

The monetary values of the budget allocation components for interurban road development for 2013 and 2014 were reportedly NIS 5.37 billion (about $US1.52 billion) and NIS 5.9 billion (about $US1.67 billion) respectively in spending appropriations; NIS 17 million (about $US4.84 million) and NIS 18 million (about $US5.12) respectively in conditional expenditures; and NIS 13.2 billion (about $US3.76 billion) and NIS 4.45 billion (about $US1.26 billion) respectively in authorizations to commit.[13]

2. Toll Road Fees

The financing of road maintenance and construction of the Cross-Israel Highway through collection of usage fees is regulated by the Toll Road (Israel National Highway) Law 5755-1995[14] and subsidiary legislation.  The Law establishes the rules governing the designation of parts of the Cross-Israel Highway as toll roads,[15] the procedures for selection and replacement[16] of the highway’s concessionaire,[17] and the enforcement authorities of the state and the concessionaire.[18]

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III. Development of Municipal Roads

Local authorities in Israel are responsible for developing, paving, and maintaining roads, sidewalks, traffic signs, and other transportation equipment located within their jurisdictions.  The financing of qualified projects within local jurisdictions, however, is partially funded by MTNIRS appropriations.  The Ministry’s contributions can be used to develop municipal arteries to ease traffic congestion, increase road safety, and improve road infrastructure in minority communities.  Governmental budget allocations for the development of municipal roads during 2013 and 2014 are listed on the MTNIRS website.[19] 

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IV. Criteria for Taxation of Cars and Gasoline

In addition to toll-road fees,[20] which are collected from drivers based on authorization under the Toll Road (Israel National Highway) Law 5755-1995,[21] the state collects additional revenues that partially support road infrastructure from a variety of indirect taxes.  Such revenues go into a general pool rather than a special road infrastructure fund.

Indirect taxes on automobile industry products and services generate sizeable revenues for the state.[22] “[I]ndirect taxes are imposed on a citizen’s expenses (goods and services) and not on income.  Taxes are normally reflected in the price of the commodity/service that the consumer purchased, so that the indirect tax is paid by the final consumer.”[23]  The following indirect taxes apply to transportation-related expenses:

A.  Purchase Tax on Motor Vehicles

A purchase tax[24] is imposed on motor vehicles in accordance with the Purchase Tax (Goods and Services) Law, 5712-1952,[25] as amended, and subsidiary legislation issued under that Law.  According to a report published on the Ministry of Finance website,

[i]n 2011 the statutory purchase tax rate remains as it was in 2010.  This after the statutory tax rate reductions beginning in 2005 and the green tax reform starting in August 2009.  Compared to the statutory tax rate, the effective tax rate has been in decline since 2000 . . . and in 2011 was about 63%, a fact that can attest to the effectiveness of green taxes.[26]

Lower tax rates were introduced in 2013 for hybrid and electric vehicles to reduce air pollution.  It is expected that “by 2020 a uniform tax regime will apply to all vehicle types.”[27]

B.  Import Tax on Vehicles

Israel applies an import tax on the importation of vehicles.  Import tax rates vary depending on whether the vehicle was produced in a country or area that is subject to a free trade agreement (FTA) to which Israel is a party.[28]  Current partners to FTAs with Israel include the European Union, United States, European Free Trade Association, Turkey, Mexico, Canada, Jordan, Egypt, Mercosur (the South American-based trade organization), and Colombia.[29]  The following rates apply to imported vehicles:[30]

Type of Vehicle

Vehicles Produces or Imported Directly from FTA Partners

Other Vehicles

Sedan/Motorcycle/Field Car



Collectors Cars



Hybrid Cars (air pollution rates 1-2)



Plug-in Hybrid Cars



Electric Cars



However, specific tax relief rates apply to vehicles according to their air pollution capacity and whether they include safety accessories.[31]

C.  Value-Added Tax on Purchase of Vehicles

The value-added tax (VAT) is an additional, indirect tax imposed on the purchase of vehicles.[32]  The current VAT rate is 18%.[33]

D. Excise Tax on Gasoline

Israel imposes an indirect tax on gasoline.[34]  The excise tax on gasoline was expected to rise by 1.6% of Israel’s consumer price index on September 1, 2013, thereby reaching the rate of 56% of the price of one liter of 95 octane gas.[35]

E. Vehicle Fees

In addition to the indirect taxes listed above, Israel also collects vehicle fees including annual licensing fees, radio fees, transfer of vehicle ownership fees, etc.[36]  The total revenues from vehicle fees in 2011 reportedly increased by 0.6% compared to 2010.[37] 

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Ruth Levush
Senior Foreign Law Specialist
March 2014

[1] The Open Budget: Development of Transportation, Israel Government Portal,, 2014,0,1,1,1,0,0,0,0,0,0 (scroll down to 2013 and to 2014; in Hebrew; last visited Jan. 6, 2014).

[2] Information on the MTNIRS is posted on the Ministry’s website, at (last visited Jan. 7, 2014).

[4] Netivei Israel – National Transport Infrastructure Company Ltd., BdiCoface, CompanyTextProfile_ENG/1940_694_0/Netivei%20Israel%20%e2%80%93%20National%20Transport%20
(last visited Jan. 6, 2014).

[5] See Who Are We, Netivei Israel, (translated from Hebrew by author, R.L.; last visited Jan. 6, 2014).

[6] Id.

[7] Id.

[8] Implementing Authority and the Concessionaire, Kvish Hoze Israel, default.asp?PageId=66&catId=12&maincat=6 (in Hebrew; last visited Jan 6, 2014).

[9] Yehuda Ravehet et. al., Cross-Israel Highway Leads the Way to Public-Private Partnerships, International Law Office (ILO) (Nov. 19, 2002),  The article provides additional information on financing and operations.

[10] Kvish Hoze Israel, supra note 8.

[11] Id.

[12] Ministry of Finance, Budget Principles for 2011–2012, at 252, StateBudget/Budget2011_2012/Lists/List4/Attachments/1/ekronotHok_2011_12.pdf; see also Ynet Lexicon for Economics, (both in Hebrew; last visited Dec. 24, 2013).

[13] See Budget Principles for 2013–2014, supra note 3.

[14] Toll Road (Israel National Highway) Law 5755-1995, Sefer HaHukim [SH] [Official Gazette ] 5755 No. 1545 p. 490, as amended (in Hebrew).

[15] Id. § 2.

[16] Id. §§ 3–5,  11.

[17] Id. §§ 6, 7.

[18] Id. §§ 12–12D.

[19] Budget Principles for 2013–2014, supra note 3.

[20] See Part II(B)(2) of this report.

[21] Toll Road (Israel National Highway) Law 5755-1995, SH 5755 No. 1545 p. 490, as amended (in Hebrew).

[22] For specific figures, see Avichai Odesar, Ministry of Finance, Taxation of Vehicles ch. 14,
(in Hebrew; last visited Dec. 31, 2013).

[23] Details Regarding Support for Implementation of Payments and Reporting, Purchase and Excise Taxes- Israel Tax Authority, (translated from Hebrew by author, R.L; last visited Jan. 6, 2014),

[24] For general information on the Purchase Tax, see Israel Tax Authority, Taxes/Pages/TaxesAAPurchaseTax.aspx (in Hebrew; last visited Jan. 7, 2014).

[25] Purchase Tax (Goods and Services) Law, 5712-1952, SH No. 110 p. 344.

[26] Odesar, supra note 24, at 2 (translated by R.L.).

[27] Id.

[28] Id.

[29] For additional information on and links to the text of Israel’s FTA agreements, see Trade Agreements and Bilateral Issues, Ministry of Industry, Trade and Labor, (last visited Jan. 7, 2014).

[30] Israel Tax Authority, the State of Israel, Ministry of Finance, Guide for Individual Import of Vehicles 4 (updated to Aug. 5, 2013, IshiRehev.pdf (in Hebrew).

[31] Id. at 4–5.

[32] Value Added Tax Law, 5736-1975, 30 Laws of the State of Israel 46 (5736-1975/76), as amended.

[33] Decree on Value Added Tax (Rate of Tax on a Transaction and on Import of Goods), 5765-2005, as amended, § 1, Kovetz Hatakanot [KT] [Subsidiary Legislation] No. 6416 p. 913; see also Yoel Shwarz, VAT [for] Cars More Expensive , (June 2, 2013),כתבה-30073-המע-מ-מייקר-את-המכוניות.aspx (both in Hebrew).

[34] Rates of Indirect Tax on Gasoline, Israel Tax Authority (updated to Apr. 30, 2014), IndirectTaxes/Documents/DelekSoler/delek300414.docx (in Hebrew).

[35] Avi Bar-Eli, Tax on Gasoline will increase in 6 Agorot for Liter, The Marker (Aug. 21, 2013), http://www.the (in Hebrew).

[36] Odesar, supra note 24, at 8.

[37] Id.

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Last Updated: 01/23/2015