Your money in 2019, part 1: cash, credit, utilities

Shekel Photo: ASAP Creative

The use of cash in purchases is now subject to a new legal ceiling in Israel as part of the fight against unreported capital.

One of the dramatic changes in 2019 is the taking effect on January 1 of the Law for Reducing the Use of Cash. The law, which restricts the public's right to use cash above a given ceiling, is designed to change everyone's consumption habits by trying to encourage the public to switch to digital means of payment.

The law limits the use of cash in each transaction to NIS 11,000 for a dealer and NIS 50,000 for private individuals. The sanction applies solely to a sum paid in cash. Payments to family members are excepted from this restriction.

The law was designed to put teeth into the struggle against the estimated NIS 350 billion in unreported capital - money used to finance the activity of criminal and terrorist organizations, among other things. The period figures indicate that unreported capital in Israel amounts to 22-23% of GDP - NIS 190-230 billion. Unreported capital in most Western countries is equal to 10-15% of GDP.

How does the new law affect our finances? Adv. Rami Arie, CPA, a tax expert, says, "All business owners must take care that any payment they receive for a transaction beyond the ceiling stipulated in the law does not exceed 10% of the value of the deal, and in any case does not exceed NIS 11,000; otherwise, they are subject to monetary sanctions. The Israel Tax Authority already announced that it will examine the receipts and details of the payment method."

The most important consequence of the law is that there is no longer any point in saving up cash to pay for large transactions, including payments for home renovations, for example. "People who saved up cash now have a problem," Arie says, "because they cannot use large amounts of cash. In deals between private individuals for the sale of a car, for example, no more than NIS 50,000 can be paid in cash, and how the payment is made must also be reported in real estate deals. The main difficulty is that if they want to go to the bank to deposit the cash they have accumulated, they have to report any deposit over NIS 50,000 to the Israel Money Laundering and Terror Financing Prohibition Authority."

The key word for people with large amounts of cash is anonymous voluntary disclosure, but this option requires payment of a 10-25% penalty, and is available only until December 31.

Is a personal credit rating good for the consumer? Not necessarily.

As in the US, starting in April 2019, every Israeli will have a personal credit rating stored in the new credit database being set up by the Bank of Israel. From that moment, anyone asking for credit from a bank or other recognized credit institution will be asked whether he or she is willing to disclose his or her credit rating. After getting a positive answer, the institutions will refer the applicant to one of three credit offices, which will retrieve the rating from the database. The entire process is supposed to take no more than a few minutes, at a cost of less than NIS 10.

The Bank of Israel's credit database will store all the loans that you took, especially payments and debts that were not redeemed on time. The data will be given to both the banks and credit institutions and to collection and enforcement authorities, which provide negative information about debtors. In the future, municipalities, water corporations, and Israel Electric Corporation (IEC) (TASE: ELEC.B22) may also disclose information about bills not paid on time. For purposes of a loan, the credit institutions will also be able to retrieve the record of the loan applicant going back three years. For other purposes not involving personal identification, data going back five or even 10 years can be taken from the database.

What is good about this? The credit database is designed to facilitate real competition between credit institutions. The record of someone asking for credit is the main consideration in pricing the risk in granting a loan, which determines the interest rate or the price that must be paid for the credit. Any institution providing credit in Israel, not only banks, currently maintains such a database for its customers. The result is that the large banks have an enormous advantage over the other players, simply because they have far more customers. The importance of the credit database is that it provides equal conditions to all of the players; the assumption is that they will use this to complete in the credit price.

Experience in the US is not encouraging. Anyone living in the US can tell you that a credit score can be a big headache. As long as there is no problem, it helps get cheap credit, but anyone who is late making a payment will not only find it difficult to obtain loans and financing, but will also encounter innumerable other entities making their service contingent on a personal rating. The Bank of Israel promises that it will be different here. Only someone asking for credit will have to disclose his or her rating, and even then has the option of refusing.

Bottom line: is this really useful for a consumer? Not necessarily.

Electric and water bills will rise. Consumers will change their consumption habits, but they will still pay.

Together with the reports of price hikes expected in early 2019, the Ministry of Economy and Industry and the Ministry of Finance published recommendations of the committee for improvement of competition in the small and medium-sized businesses and self-employed sector. The committee deliberated for a year, considered its recommendations, and issued NIS 600 million in recommendations designed to benefit tens of thousands of people in the business sector.

"I don't want all of these benefits. I don't want favors with false presentations and nonsense," Association of Craft and Industry in Israel president Yossi Alkobi told "Globes" this week. "What use are all of these benefits if I wake up in the morning and see that the state has arranged a series of price hikes that make it impossible for my colleagues and me to survive? These price hikes will cost the small and medium-sized businesses sector almost NIS 200 million a year just in higher electricity costs and municipal property taxes."

The increase of over 8% in electricity rates is alarming industrialists. Manufacturers Association of Israel economics division head Natanel Haiman gives a personal example: "For me, as a business owner in Rishon Lezion, higher electricity prices will increase my annual expenses by NIS 16,000." The electricity price hike will also lead to a 4.5% rise in water prices, because the price of the electricity used to produce desalinated water is included in the water prices paid by consumers. Concern is rising about a wave of price hikes that will affect everyone. Politicians are also demanding action, although is appears that this Pandora's Box has already been opened.

Bottom line: the public will have to change its consumption habits again in order to prevent a more painful addition to its monthly bills.

Published by Globes, Israel business news - en.globes.co.il - on January 1, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Shekel Photo: ASAP Creative
Shekel Photo: ASAP Creative
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