The prices of public transportation and a basic water quota will be reduced by the amount of VAT, in other words, by 17%, Minister of Finance Moshe Kahlon and Minister of the Development of the Negev and the Galilee Aryeh Deri agreed. The agreement was a compromise with Deri's demand to eliminate VAT on these services. The compromise was designed to avoid tax distortions. The price cuts will be included in legislation.
Deri explained today, "They told me that when you eliminate VAT on a certain price, the slope is too steep, which will happen in a year or two… Eventually, we agreed on legislation that could not be changed other than by three Knesset votes for both public transportation and water."
Deri noted that as a result of the legislation, 1.5 million water consumers not connected to the water corporations would receive a discount. He added that the budget cost of the measure would be NIS 1 billion, instead of the NIS 650 million agreed in the state budget framework. The added amount resulted from Deri's demand to added NIS 300 million in water discounts to NIS 650 million in public transportation discounts.
Deri stated, "In public transportation, rates will be lowered to reflect the current level of VAT, in addition to many other measures the government is taking in this area, for example the reform in rates and increased service. This measure is good news for the economically disadvantaged, who use public transportation extensively, and good news for everyone. We hope that lower prices will lead to increased use of public transportation, and help reduce the cost of living, especially for the economically disadvantaged."
Deri said that for water, the price of the basic amount consumed by households would be cut by the current VAT level (17%). He added, "This measure is expected to benefit the poor who consume the basic quantity of water (3.5 cubic meters per capita), and of course will lower the cost for all households in Israel."
Published by Globes [online], Israel business news - www.globes-online.com - on December 27, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015