Ahead of the current downturn, the boom in Israel's tech sector last year resulted in an unprecedented amount of wealth, according to a special report published by the Israel Tax Authority.
In 2021, a record 562 Israelis paid more than NIS 1 million each in taxes for income from capital gains. As the tax rate for capital gains is 25%-30%, this would mean that those Israelis would have earned at least NIS 3.5 million each from capital gains, before tax.
According to Adv. Itay Bracha, managing partner and head of the banking and taxation department of the Bracha & Co. law firm, this completely reflects the situation in Israel's tech sector last year. "Many employees received options and their company raised money for astronomical valuations and they became millionaires."
Bracha explains that the overall sum paid by those 562 Israelis was well over NIS 5 billion, huge revenues for the state, and many of these wealthy people paid tens of millions in capital gains. On average the amount made on capital gains was about NIS 25 million, before tax.
Over double previous years
For the sake of comparison, in 2020 the number of Israelis who paid over NIS 1 million in capital gains to the Tax Authority was 260, up from 224 in 2019. The Israel Tax Authority describes 2021 as exceptional and predicts that in 2022 we will return to much lower levels, resembling previous years.
The Israel Tax Authority wrote, "The enormous increase in revenues stems from the proliferation of investments of high sums, mainly in high-tech companies, which began in the middle of 2020 and continued throughout 2021. As a result of this, shareholders in the companies acquired and employees recorded significant income from capital gains for exercising holdings and options that they had. In the first quarter of 2022, we can still see high income in individual capital gains as a result of deals in 2021, but in the second quarter the amount of income and the number of deals fell significantly."
The Israel Tax Authority added that capital gains paid last year were by no means exclusively in the tech sector.
The Israel Tax Authority concluded, "Between January 2021 and June 2022, tax revenue was especially high. The rise in revenue was significantly above what was expected and above the rate of growth in GDP."
In summing up 2021, the Tax Authority reports that revenue from taxes was NIS 376.9 billion, up 22% from 2020, the peak of the Covid pandemic, and 21% higher than 2019, before the Covid crisis.
Published by Globes, Israel business news - en.globes.co.il - on August 3 2022.
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