Prime Minister Benjamin Netanyahu and his economic advisor and Prof. Avi Simhon are pushing to cancel the VAT hike from 17% to 18% due to come into effect on January 1, 2025, a source close to the matter has told "Globes." A plan prepared by National Economic Council head Simhon, which is backed by Netanyahu, proposes using revenue from the plan to offer additional tax benefits on the distribution of dividends from trapped profits, which he is promoting, in order to cancel the VAT hike, which was already approved as part of the state budget enacted last March.
The 1% VAT hike should increase state revenues by over NIS 7 billion annually. At the same time, the dividend generated immediately by release of trapped profits is estimated at NIS 5-10 billion by the Ministry of Finance and NIS 20 billion by Simhon. Even with the lower estimate the taxes could replace the expected revenue from the VAT in 2025.
Ministry of Finance flagship plan
The VAT hike the Ministry of Finance's flagship plan in the revised war budget to offset the increase in defense spending. The credit rating agencies welcomed it, as a factor against further downgrades, so a u-turn on the matter could reflect problematically on Israel.
The latest proposal reflects Simhon's return to a position of dominant influence in shaping the government's economic policy. After a period of relative silence in the previous budget, Simhon is now behind the promotion of a number of key moves, which aim to provide tax benefits to the public. These include the plan to incentivize the release of trapped corporate profits at a reduced tax rate, the cancellation of the VAT hike, and allowing the public to withdraw money from advanced study funds (Keren Hishtalmut) with a reduced penalty.
Sources in the Ministry of Finance believe that the increased involvement of Simhon stems from growing pressure from Netanyahu to find new revenue sources to avoid additional tax hikes.
Published by Globes, Israel business news - en.globes.co.il - on July 14, 2024.
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