Minister of Finance Yair Lapid has decided to reduce tax breaks for companies in central Israel under the Law for the Encouragement of Capital Investments by several percentage points. The decision was made a closed meeting on the matter on Tuesday.
Sources inform ''Globes'' that Lapid plans to lead the measure with Minister of Industry, Trade and Labor Naftali Bennett, who is also responsible for the law.
In contrast to Lapid's predecessor, Yuval Steinitz, who strongly supported and promoted tax cuts for companies under the law, Lapid objects to the difference between the 25% companies tax rate, which may go up, and the reduced tax rate, which is expected to reach 12%. Under the Law for the Encouragement of Capital Investments, beneficiary companies in the periphery pay a tax rate of 7% and companies in central Israel pay a rate of 15%. These rates are due to fall to 6% and 12%, respectively. Under the proposal, the companies tax rate for companies in central Israel will rise to approach the rate in countries that compete against Israel.
The companies tax rate for companies in the periphery will not change. Lapid has accepted the recommendation of Ministry of Finance officials who believe that the difference in the companies tax rate between beneficiary and other companies should be narrowed, but that the difference between central Israel and the periphery should be widened.
As for the future tax rate the officials said that the important element for increasing the competitiveness of Israeli companies is the tax rate in rival countries, and not the tax rate in Israel. Lapid's aides say that the new tax rates will be set after the ministry officials present the alternatives to him.
During the discussion, Lapid spoke out against retroactive changes. In other words, some companies will continue to benefit from the current tax break for at least 3-4 more years.
The Ministry of Finance says that if more changes are made in the Law for the Encouragement of Capital Investments related to tax breaks, they will have no immediate effect, nor will they solve the deficit expected over the next two years. The main reason for this is that the government promised corporations these tax breaks under various plans, and it is not possible to re-open the agreements.
Published by Globes [online], Israel business news - www.globes-online.com - on April 11, 2013
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