Employee tax burden rising in Israel

Moshe Kahlon

Israel is still among the five OECD countries with the lowest direct tax burden.

Israel is one of the five developed countries in the world that increased the tax burden on labor in 2015, according to a review of taxes on labor published by the Organization for Economic Cooperation and Development (OECD). The review indicates that the direct tax burden in Israel rose by nearly 0.5% as a result of a real 0.25% income tax hike. The National Insurance tax remained unchanged.

Together with Prime Minister Benjamin Netanyahu, Minister of Finance Moshe Kahlon led a 1% cut in VAT (starting in October 2015) and a 1.5% cut in corporation tax (starting on January 1, 2016), but there was no cut in income tax.

Formally, the income tax rate has not risen since 2013, and it is therefore possible that the reason for the increased tax burden in Israel is negative inflation (-1% in 2015 and -0.2% in 2014). Published yesterday, the OECD survey analyzes the tax burden on labor in the organization's 34 member countries. Taxes on income from labor are also called direct taxes, in contrast to taxes on spending or consumption, which are called indirect taxes. Israel is considered a country with a low direct tax burden, but a relatively high indirect tax burden.

The figures published yesterday show that despite the rise in the tax burden in 2015, Israel is retaining its position among the five countries with the lowest direct tax burden, after South Korea and ahead of Mexico, New Zealand, and Chile

As of the end of 2015, the direct tax burden in Israel was 21.6%, compared with the OECD average of 35.9%. The tax burden on a worker with children was lower 18.9% for a family with one breadwinner and two children.

The direct tax burden in Israel consists of income tax, which averages 8.9% on income from labor, and National Insurance tax: 7.5% for the worker and 5.1% for the employer. The cost of employing a worker in Israel is $36, 094 in purchasing power parity (PPP), and the average annual income is $34,241.

Published by Globes [online], Israel business news - www.globes-online.com - on April 13, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Moshe Kahlon
Moshe Kahlon
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