Are we on the way to a dramatic change in the real estate market? Sources inform "Globes" that the Ministry of Justice, the National Planning Administration, and the National Planning and Building Council have begun to promote comprehensive reform of the betterment levy, including examination of the possibility of abolishing the levy altogether, and creating a new mechanism for taxing the enhancement of the value of land as a result of planning changes.
The betterment levy in a local tax collected from owners of land following the approval of a plan that leads to an increase in the value of the land, or the granting of a building permit, or a relaxation of the planning regulations, or approval for exceptional use. The levy, other than in certain specific cases, is 50% of the increase in value of the land, and just about anybody who owns a property will pay a betterment levy at some point.
Every year, betterment levies totaling billions of shekels are collected from property owners in Israel. The levies go straight to the local authorities, and are one of their main sources of revenue. Any change in this area, and certainly abolition of the levy, will therefore have a huge impact on local authority finances.
The move to reform the betterment levy is being led by Deputy Attorney General Adv. Carmit Yulis, together with National Planning and Building Council chairperson Rabbi Natan Elnatan and Planning Administration director Rafi Elmaliach.
The idea of the betterment levy is simple. A person benefits from an increase in the value of property they own thanks to action by the state (generally through the local planning body). On that account, and in accordance with the principle of distributive justice, the state "captures the value of the land" that has been enhanced, and imposes a tax that is transferred to the local authority within whose jurisdiction the property is situated. With this money, the local authority can finance the cost of planning and development in public areas, and in fact any public investment in its jurisdiction.
Over the years, however, this apparently simple tax has become a bureaucratic monster. Betterment assessments, which are determined by surveyors and are often not uniform, are constantly challenged by the taxpayer’s own surveyor, and end up on the desk of a deciding surveyor, in appeal committees, and in the courts. The very calculation of the levy has become complicated, because of a welter of regulations, plans, and legislation that affect the way it is implemented. Thus a situation has arisen in which a tool meant to express one specific element in the world of real estate, "capturing the value of land" to help finance public investment, has swollen to vast proportions, to the extent that it delays projects and gives rise to endless disputes. The planned reform seeks to change this reality.
"There are various directions of thought on the issue, and at the moment this is where the move is up to, but the situation will certainly not remain as it is," a source familiar with the details told "Globes". Another sources said, "Several voices have been heard, both in the Ministry of Justice and in the top planning institutions - the National Planning and Building Council and the Planning Administration - calling for complete abolition of the levy. In academic circles too the prevailing view is that this is a levy that should be abolished. There are many problems with this tax, and it mainly creates uncertainty in the sector."
"It’s a twisted, substandard, unserious method that harms the entire public," says Amit Gottlieb, chairperson of the Tel Aviv and Central branch of the Israel Builders Association. "We have created a convoluted mechanism that costs us time, money, and health. Land that I could have sold within a year takes four years, only because of the uncertainty that this mechanism creates. It’s something that has to be fixed."
Complete abolition of the betterment levy is just one of the possibilities being considered. Another is to retain the levy, but to change the way it is applied to make it clearer and more certain. Earlier this year, the Ministry of the Interior published a draft bill meant to bring order in this area, but so far it has made no progress. In any event, there is a long way to go before changes are actually introduced. One reason for that is the war. Another is opposition from various pressure groups, chiefly the local authorities. A report by the State Comptroller published in July 2024 states, "Revenue from betterment levies has an appreciable impact on the financial position of the authorities and on the means they have available for planning the public space and developing it, and constructing public buildings, and hence for providing suitable services to their residents in these respects."
The report states that total revenue of local authorities from betterment levies was NIS 8.7 billion in 2021. According to the Knesset Research and Information Center, in 2015 the total was NIS 3.6 billion, which means that revenue from this source more than doubled in six years.
Globally, betterment levies are not common, and most countries apply other methods of capturing land value and contributing to the public purse. The State Comptroller’s report states that only 20% of the countries examined collect a levy in the way it is done in Israel.
Published by Globes, Israel business news - en.globes.co.il - on September 4, 2024.
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