Sources inform ''Globes'' that top Ministry of Finance officials have an even more far-reaching proposal for Minister of Finance Yair Lapid on top of the proposal to tax advanced training funds: to amend and reduce the tax break on pension savings through provident and pension funds and managers' insurance.
"We've said that all tax breaks are on the table, including tax breaks on savings plans," a top Ministry of Finance official said today. "We're considering an amendment," he added, without providing details.
At the moment, the reason for the amendments is fiscal - to increase tax revenues - but the Ministry of Finance says amendments to make the distribution of income more equitable are also under discussion. One measure contemplated is to halve the cap for tax breaks from NIS 35,000 a month, because the ministry believes that a salaried employee who earns more than NIS 30,000 a month should not be eligible for a tax break on the accumulation for pension savings. Another idea is to cancel the tax break on part of the accumulation.
"It is not certain that the state should help support a salaried employee who has already accumulated NIS 1.5-2 million," said the top Ministry of Finance official.
Market sources believe that such a measure by the Ministry of Finance would cause massive public fury, and would not be accepted because of the huge damage it could cause the working-age population in the decades after their retirement.
The government encourages the public to save for their retirement by granting tax breaks on pension savings that do not apply on other kinds of savings. But given the mandatory pensions required of all employees a few years ago, the government can permit itself to cut the tax break from which only the working-age population benefits (with an emphasis on high income-earners).
Tax breaks are granted for all instruments, from the deposit stage, when less income tax is paid on pension provisions (the Ministry of Finance says that the time has come to simplify the tax breaks structure and change the deduction-credit ratio); at the savings stage (an exemption from the capital gains tax); and at retirement (currently, pensions up to NIS 8,500 a month for men and NIS 9,400 a month for women are tax exempt, and the threshold is due to rise in 2016).
The Ministry of Finance likes to say, "For every shekel a worker saves, the state adds half a shekel through tax breaks." It seems that the ministry now wants to reduce this tax break. According to the State Revenues Administration, the tax break on pension savings totals NIS 11 billion a year, making it the largest item out of the NIS 40 billion in all tax breaks. The tax break on advanced training funds totals NIS 2.4 billion a year, less than a quarter of the tax break on provident funds.
Published by Globes [online], Israel business news - www.globes-online.com - on April 14, 2013
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