The initiative to abolish the exemption from VAT on purchases from overseas websites is again on the agenda. Minister of Finance Avigdor Liberman is considering cancelling the exemption from VAT on purchases by Israelis from overseas to a value of up to $75. The proposal is part of the discussions on the budget for 2021-2022 and the accompanying Economic Arrangements Bill, and Liberman is tending to favor the recommendation of Israel Tax Authority director Eran Yaacov on the matter. Since, however, this is not the first time in recent years that such a proposal has arisen, it remains to be seen whether it will actually be implemented.
The proposal to abolish the VAT exemption on overseas online purchases was part of the plan put together for the 2020 state budget to close the fiscal gap that then stood at NIS 20 billion and that now, in the wake of the coronavirus pandemic, amounts to NIS 150 billion. As we know, the 2020 budget was never passed, but the proposal to abolish the VAT exemption is under consideration for the new budget.
Retailers in Israel complain that the exemption harms their ability to compete against online retailers abroad, creating unfair discrimination. The consumer argument is that it enables people avoid high prices in Israel. In 2018, the matter even reached the High Court of Justice, in a petition by importers and retailers. The court decided not to intervene.
Liberman's predecessor as minister of finance, Israel Katz, opposed cancellation of the exemption, but the issue did not die down. Business organizations have for years demanded cancellation, headed by Dubi Amitai, chair of the Presidium of Israeli Business Organizations, and the Federation of the Israeli Chambers of Commerce and its president Uriel Lynn.
Data gathered by the Presidium of Israeli Business Organizations, through consulting firm Sparks, indicate that online commerce in Israel amounts to NIS 16 billion annually, and the figure is expected to be substantially higher following the coronavirus pandemic. In 2019, 65% of online purchases in Israel were from abroad.
Cancellation of the VAT exemption is very significant for the budget, and will only grow more significant in the future. The exemption is currently estimated to cost NIS 1.5-2 billion annually.
It is hard to estimate what impact cancellation of the VAT exemption will have on imports, but it is likely that the rate of growth, which has been 20% in recent years and probably more in the coronavirus year, will slow substantially after the tax is imposed, at least in the short term.
Published by Globes, Israel business news - en.globes.co.il - on June 28, 2021
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