Gov't plans NIS 500m tax breaks for small businesses

Moshe Kahlon  photo: Ronen Zvulun, Reuters

1.5 million small and medium-sized businesses were active in 2017.

Minister of Finance Moshe Kahlon and Minister of Economy and Industry Eli Cohen will present their ministries' new plan for increasing productivity and improving the business environment for small and medium-sized businesses in Israel after the holidays. Sources involved in formulating the plan estimated its cost at over NIS 500 million.

Sources inform "Globes" that the heart of the plan is a series of tax breaks for small and medium-sized businesses aimed at upgrading processes, bolstering productivity, and improving competitiveness. Another prominent tax benefit is an exemption from payment of full payment of VAT for exempt dealers. The committee formulating the plan is headed by Ministry of Economy and Industry director general Shay Rinsky and Ministry of Finance director general Shai Babad. Also participating in the discussions are Israel Tax Authority director general Eran Yaacov, Ministry of Finance Accountant General Rony Hizkiyahu, and Ministry of Economy and Industry Small and Medium Business Agency director Ran Kiviti.

A very small business is currently someone with an annual sales turnover that does not exceed NIS 100,000. According to the plan, the annual turnover ceiling for these very small businesses will be raised to between NIS 120,000 and NIS 150,000 and they will receive a full VAT exemption from the state. In order to illustrate the point, were this benefit currently granted to a business, it would receive NIS 17,000 a year that it currently pays in VAT to the state. This benefit is estimated at NIS 400 million a year.

With the raising of the annual income ceiling for very small businesses, many members of the liberal professions are likely to benefit from this measure because they will be able to obtain recognition from the Tax Authority as exempt businesses and benefit from a full VAT exemption. The professions involved include lawyers, psychologists, economists, tax advisers, accountants, various types of consultants, journalists, editors, etc.

Another tax benefit to be included in the plan is recognition of accelerated depreciation to encourage investments. This measure will allow the absorption of advanced mechanization and equipment in small and medium-sized businesses. The tax authorities will recognize the depreciation of these businesses within short timespans, while reducing the number of tax payments by the business. The Ministry of Finance and the Ministry of Economy and Industry are convinced that this measure will improve the productivity of small and medium-sized businesses in Israel, which is believed to be below the average in the Western World.

An economic source told "Globes," "Such a benefit will help mainly businesses in the setting up stage by helping them cut their tax payments in the framework of the investments that they make."

Also under consideration in the committee's deliberations is the possibility of equalizing the status of self-employed people and employees in Israel by providing a "mourning payment" to the self employed to indemnify them for the seven days of mourning at home observed in Judaism for the death of first-degree relatives. The state does not currently indemnify the self-employed for mourning days, while employees are paid their regular salary during these days, with the employer being paid for this by the National Insurance Institute.

The committee will decide during the coming days whether to also include in its recommendations to ministers unemployment benefits for the self employed if the business or company they own shuts down. Organizations of the self-employed have complained for many years that they are discriminated against in comparison with employees, who are entitled to unemployment benefits if they are laid off.

Early this year, the Knesset plenum voted down in its preliminary vote an amendment to the National Insurance Law submitted by MK Meir Cohen (Yesh Atid) that would have allowed unemployment compensation for the self-employed. It was claimed that budget resources for it were lacking.

While the committee's discussions were taking place, the organization representing small businesses and the self-employed submitted a model to the committee for payment of unemployment compensation. A source on the committee said that the issue was a complicated one and required further discussion.

The discussions on the plan for devising the plan to strengthen small businesses began following a cabinet resolution in January, when the organizations representing small and medium-sized businesses complained that they had not received benefits in another government plan for aiding industry.

The committee was given six months to submit its recommendations to Kahlon and Cohen. A source involved in the committee said that the delay in submitting the recommendations was due to the prolonging of the discussions resulting from disputes about how tax benefits should be provided.

Figures published by the Ministry of Economy and Industry show that 1.5 million small and medium-sized businesses were active in 2017, with 50,000 new businesses being opened during the year and 40,000 closed down. These businesses constitute 99.5% of the entire business sector and account for 53% of business product.

Main principles of the plan for small and medium-sized businesses:

More very small exempt businesses: the annual income ceiling for exempt dealers will be raised to NIS 120,000-150,000 and they will be fully exempted from paying VAT.

Fewer taxes: Small and medium-sized businesses will receive tax benefits in the form of accelerated depreciation, so that they can claim more depreciation on their investment in assets and new equipment and pay less tax.

Payment by the state for the period spent at home mourning for first degree relatives who have died (employees already receive this benefit through their place of employment).

Unemployment benefits for the self-employed: the possibility of unemployment benefits from the National Insurance Institute for self-employed whose businesses have shut down is under consideration.

Reduction of the regulatory burden: the committee will recommend a series of measures aimed at reducing the bureaucratic and regulatory burden creating difficulties for the business sector.

Published by Globes [online], Israel business news - www.globes-online.com - on August 27, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Moshe Kahlon  photo: Ronen Zvulun, Reuters
Moshe Kahlon photo: Ronen Zvulun, Reuters
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