Average Israeli income tax rate among lowest in OECD

Average Israel tax rate has dropped in past 3 years, while rising in most OECD countries.

According to an OECD study comparing tax systems, most OECD countries (25 of 34), raised income tax rates for individuals over the last three years. This contrasts starkly to the trend in the Israeli economy. According to the study, Israelis are among the lowest income-tax payers, despite public perceptions on the matter. Over the last 14 years (2000-2013), the fall in the income-tax burden has been one of the sharpest among OECD countries.

According to the study, Israel ranks 31 out of 34 in terms of the average tax rate, with Israeli workers paying an average of 20.7% of their salaries to the tax authorities (including income tax, employer and employee national insurance contributions, and accounting for credit points), compared to a tax burden of nearly 36% on average in other developed countries.

More importantly, the tax burden dropped nearly nine percentage points between 2000 and 2013, from 30% to 21%, a 30% drop. This is a sharp drop compared with other OECD countries, where the average tax burdens dropped less than one percentage point, from 36.7%, to 35.9%.

Surprising findings

OECD economists compared income tax rates by family size and marital status as well. It appears that couples with two children and only one working parent, where the working parent earns the average Israeli salary, had the most significant reduction in income tax rates. This group has seen an eight percentage point fall in their income tax rates over the past 14 years, from 25.5% to 17.4%. Also, in recent years (2009-13), their tax burden fell further by almost a percentage point. This contrasts sharply with similar households in other OECD countries in this period, where the tax burden rose by 1.4 percentage points, to 26.4%. In other words, the tax burden for a household with two children and one working parent is ten percentage points lower in Israel than in other OECD countries.

Households with two children and two working parents in Israel have the most favorable terms among OECD countries (except Chile): the tax burden dropped to a mere 14.3% in 2013, compared with an average tax burden of more than double, 31%, among OECD countries. Another figure illustrating the progressiveness of the Israeli tax system is that the tax burden for a single mother of two earning two thirds of the average salary (NIS 6,000 in 2013) was only 1.5%, in other words, nearly fully exempt from paying income tax. This stands in contrast to the OECD average of more than 17%.

Of particular interest is what transpired between 2009 and 2013, when major taxation changes took place: in Israel, the tax burden continued to drop, by 0.6%, compared with the situation in other OECD countries, where tax burdens increased by an average of 0.8%.

Published by Globes [online], Israel business news - www.globes-online.com - on April 23, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018