Tax breaks totaled NIS 5.6b in 2010

Former Finance Ministry director general Avi Ben-Bassat: Tax breaks are out of control.

On January 17, 2013, "Globes" asked Tax Authority coordinator in charge of the Freedom of Information Law Ilan Tsur, to give "Globes", under the Freedom of Information Law, 5758-1998, a list of the companies which received tax breaks in 2006-10 under the Law for the Encouragement of Capital Investment, including the ten companies that received the biggest tax breaks, and how much they received. But the officials responsible for freedom of information at the Ministry of Finance and the Tax Authority rejected the request, claiming that the transfer the information was banned by law.

On March 21, "Globes" filed an administrative petition under the Freedom of Information Law with the Tel Aviv District Court, asking the court to order the Ministry of Finance and the Tax Authority to provide the newspaper with the information requested. "Globes" filed the petition after it revealed that the tax break received by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) alone was NIS 3 billion in 2011.

After a long delay, on May 4, the State Revenues Administration published its report for 2011, which included very partial information on tax breaks given to big companies. The report stated that, in 2003-10, there was a sharp increase in the tax breaks under the Law for the Encouragement of Capital Investments from NIS 2.3 billion in 2003 to NIS 5.6 billion in 2010.

The report also stated that there was a nominal 470% increase over this period (from NIS 3.2 billion in 2003 to NIS 18.2 billion in 2010) in the business income of the four biggest companies - Teva, Israel Chemicals Ltd. (TASE: ICL), Check Point Software Technologies Ltd. (Nasdaq: CHKP), and Intel Israel Ltd. - which were the beneficiaries of 70% of the tax breaks. In contrast, the business income of the other 600-700 beneficiary companies rose by 29% (from NIS 7.7 billion in 2003 to NIS 10 billion in 2010).

NIS 12-14 billion in tax breaks projected

The next day, May 5, "Globes" reported that the NIS 5.6 billion in tax breaks disclosed by the State Revenues Administration was "small change", compared with what has happened since and what will happen in the coming years. As reported at the time, the tax breaks that the government will award in 2013 will reach NIS 7-8 billion, and will soar to NIS 12-14 billion a year over the subsequent two years. This means a 20-25% increase a year in total tax breaks until the completion of all projects, especially the big projects, within 10-15 years, under the old Law for the Encouragement of Capital Investment regime, before the new law came into effect in 2011.

"If someone does not stop this now, immediately, and immediately change the tax rates set in the amendment to the new law, which it turns out are also improper compared with the prevailing companies tax rate, there will be a very serious revenues problem here in the coming years," "Globes" wrote.

In an article published the next day, "Globes" reported that Teva, Intel Israel, Israel Chemicals, and Check Point, which are considered Israel's biggest companies, received NIS 3.88 billion in tax breaks in 2010 - 70% of all tax breaks awarded that year under the Law for the Encouragement of Capital Investment.

Sharing the burden

In response to the State Revenues Administration report, Avi Ben-Bassat of the Hebrew University of Jerusalem and former Ministry of Finance director general, told "Globes", "It is unimaginable that Teva, Intel Israel, Israel Chemicals, and Check Point should not share in the burden," he said. "The economy is in fiscal trouble, reflected in the huge budget deficit. There is no question that this deficit should be greatly reduced, but it is unimaginable that these companies will not share the burden that will soon fall on the public."

Ben-Bassat was also critical of the fact that, whereas the budget for cash grants under Law for the Encouragement of Capital Investment was limited and controllable, tax breaks were unlimited, and depended on the eligible companies' profits. "Since there is no budget limit to the tax breaks, they have grown massively in recent years, amounting to NIS 5.6 billion in 2010.

"In 2010, these four companies accounted for 70% of the tax breaks. Moreover, development areas received only 28% of the benefits pie. These figures prove that the tax breaks seriously discriminate between companies, as well as greatly exacerbating inequality between individuals in the economy. There is no question that the companies' owners enjoy huge subsidies, which is ultimately reflected in heavier taxes collected from others, or in the provision of fewer services to the people."

Published by Globes [online], Israel business news - www.globes-online.com - on July 8, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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