VAT hike to generate NIS 4.6b annually

The Israel Tax Authority estimates that the VAT hike by 1% to 18% will generate NIS 4.6 billion in revenues a year, and it is the most important element of the NIS 13.6 billion tax package of the 2013-14 stage budget. Despite an explicit promise not to raise taxes, this is the second tax hike within a year by Prime Minister Benjamin Netanyahu, following the tax hikes of September 2012.

The VAT hike will come into effect at midnight between Saturday, June 1, and Sunday, June 2. VAT hikes are normally scheduled to take effect on the first of the month, to avoid different rates in a single month. But Knesset Finance Committee chairman MK Nissan Slomiansky (Habayit Hayehudi) decided to delay the hike by one day to avoid desecrating the Sabbath.

As an indirect tax, VAT is considered the most regressive tax as it hits low income-earners more than high income-earners. Low income-earners spend all their income on consumption, which is taxed, while high income-earners spend only part of their income on consumption.

VAT is applied to all goods and services, except for fruits and vegetables, which have been exempt for historical reasons. The exemption is considered one of the biggest tax distortions in Israel, benefiting mostly growers and retailers. Were it revoked, as the Ministry of Finance has sought to do for years, it would generate NIS 2.5 billion a year in revenues.

Published by Globes [online], Israel business news - www.globes-online.com - on May 30, 2013