The degree to which Israel's markets have been open in recent years is very similar to that of Western countries, Business Data Israel (BDI) reported today. The report added that in some cases, Israel's market is even more open than its competitors in Europe and the US.
BDI found that in contrast to the situation in Israel until a decade ago, the purchase tax is now the largest tax component on imported goods, rather than customs duties. BDI states that this fact proves that whereas until a few years ago, Israel was clearly and stubbornly protected domestic industry from competition, current policy is liberal and more open, not only in comparison with the past, but also by international standards.
BDI states that in recent years, as customs duties were lowered, protection of domestic manufactures was significantly reduced, while Israel's market was simultaneously opened to widespread and more sophisticated competition from equivalent imported products.
The data indicate that 86% of tax revenues, excluding VAT, on imported goods originates in the purchase tax, and only 14% comes from customs duties. In 2002, tax revenues on imported goods totaled NIS 10.3 billion, which means that the purchase tax on these goods amounted to NIS 8.8 billion, and customs duties amounted to NIS 1.5 billion.
BDI co-CEO Tehila Tamir-Yanay says while customs duties are imposed in order to protect domestic manufactures from competition, the purpose of the Purchase Tax is completely different. This tax is imposed equally on imports and domestic manufactures, and therefore does not protect against imports.
The data show that the bulk of purchase tax revenue comes from on cars, amounting to 58% of the tax collected on imported goods, while 23% comes from the tax on cigarettes and food products.
Tamir-Yanay claims that the low customs duties now prevalent in Israel are the result of a lengthy process that accelerated in the 1990s. The increase in the number of free trade agreements and unilateral customs reductions by the government, such as the 1991 exposure plan, lowered Israel's customs duties. Israel's free trade agreements with the US, EU, Canada, Mexico, Turkey and many other countries have resulted in customs exemptions on imported manufactures from these countries.
BDI also found that Israel's highest effective customs duties are now applied on consumer goods - 3.9%. Customs duties are 0.7%on investment goods, and only 0.4% on manufacturing inputs.
A comparative study of Israel's customs duties with those of the US found that Israel's effective customs duties were lower than in the US: 0.9% compared with 1.7%. This means that Israel's market has been more open than the US market in recent years.
Israel also uses quotas less often than the US and EU. For example, whereas the US and EU apply a quota regime on clothing and textiles, Israel does not.
Published by Globes [online] - www.globes.co.il - on December 29, 2003