Minister of Finance Yuval Steinitz is following in the footsteps of Governor of the Bank of Israel Prof. Stanley Fischer in trying to stem the speculators' assault on the foreign currency market. The Ministry of Finance today announced that it has decided to seek to revoke a tax exemption for foreign investors on profits from investments in Treasury bills (makams) and short-term government bonds.
The announcement caused the shekel-dollar exchange rate to jump 1.4% to NIS 3.65/$ in afternoon inter-bank trading, and the shekel-euro exchange rate to jump 1.6% to NIS 5.005/€.
Ministry of Finance director general Haim Shani headed a team that examined in the past few weeks the measure and its possible ramifications on the foreign currency market. The Ministry's measure directly follows the last week's directives by the Bank of Israel requiring banks to report foreign currency swap and forward transactions by nonresidents in excess of NIS 10 million a day, and the raising of the banks' reserves requirement on these transactions to 10% from 6%.
Foreign investors are currently exempt from the 15% tax rate on profits on transactions in Treasury bills (makams) and short-term government bonds. The Ministry of Finance statement explicitly says that it is targeting speculators. "There is concern that the tax exemption is being exploited by players in the foreign currency market to make quick profits. Therefore, cancellation of this tax exemption, which requires legislative action, is expected to reduce to some extent the attractiveness of buying makams and short-term bonds by nonresidents, which will reduce purchases of shekels, thereby weakening the currency."
The Israel Tax Authority is formulating an amendment, which will be submitted to the cabinet and then to the Knesset for approval.
Published by Globes [online], Israel business news - www.globes-online.com - on January 27, 2011
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