People with higher than average earnings will benefit from an addition to their net income of about NIS 300 monthly in 2024. This follows the rise in the Consumer Price Index of 3% in 2023. The income tax brackets are linked to the Consumer Price Index, so that a rise in the index translates directly into a rise in net pay.
In addition, there are the tax credit points that various employees are entitled to that reduce their tax liability. The annual saving from these can be NIS 1,200-1,500, or even more.
The Israel Tax Authority has published a booklet (in Hebrew) setting out the revised tax brackets, the value of credit points, and other matters affecting income tax liability.
The new tax brackets (monthly gross income in shekels) and associated tax rates are:
1-7,010 - 10%
7,011-10,060 - 14%
10,061-16,150 - 20%
16,151-22,440 - 31%
22,441-46,690 - 35%
46,691-60,130 - 47%
60,131 and above - 50%
The cumulative amount of income tax for someone earning, say, NIS 18,000 monthly gross, is NIS 2,920, giving an effective rate of 16.22%. This is before any applicable tax credit points are taken into account. For someone earning NIS 55,000 monthly, the figures are NIS 16,689 and 30.34%. In addition, earned income is also liable to national insurance contributions and health tax, which together range from just under 6% to just under 18%.
Adv. Itay Bracha, managing partner of law firm Bracha & Co., and a tax specialist, says, "As a result of the rise in the Consumer Price Index, monthly net pay will increase by up to NIS 318. The higher the salary, the more net income will rise. In addition, the rise in the Consumer Price Index also affects the credit points each person is entitled to depending on residence, marital status, number of children, and other factors. Because of the change in the Consumer Price Index, the value of each credit point has risen by about NIS 7 monthly to NIS 424."
Residents of Israel are automatically entitled to 2.25 credit points. "As a result, net pay will increase by at least NIS 16 monthly for every employed person. Each additional credit point to which an employee may be entitled will increase net pay further."
The agreement between Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich on additional credit points to parents of children aged 0-3 will also affect the net pay of working parents. "Under the agreement, working parents will each receive two credit points for each child aged 0-3. This is a benefit worth NIS 484 monthly for every person with children in this age group after the rise in the Consumer Price Index is taken into account," Bracha says.
"At a rough calculation," he says, "if we take an average person with a monthly salary of NIS 15,000 and two children, the annual tax saving is NIS 1,200. Of course, the more children there are, and the higher the salary, the larger the saving."
Bracha reminds us that tax debts and tax rebates are also linked to the Consumer Price Index, and will thus rise by 3%. In addition, they bear annual interest of 4%.
Tax consultant Gitit Shlomi, acting president of the Institute of Tax Consultants in Israel, explains that not everyone will benefit from the revised tax brackets. "The widening of the tax brackets and the revision of the ceilings, such as the ceiling for severance pay and for surtax, mean lower taxation, but you have to ask, to whom does this apply? It’s not at all certain that those earning less than the average salary, which is currently NIS 12,536 monthly, will gain anything.
"The weak will not benefit from this, because the credit points are give to those at the higher tax brackets. If you want to make an impact on the weak sections of the population, you have to think how to give tax benefits specifically to them, especially now when the cost of living will rise as a result of the government’s intention of raising the rate of VAT to 18%. This rise in VAT will apply to everybody, but the beneficiaries of the widening of the tax brackets are only those with high salaries. Instead of helping the people who need it most, the rich get richer, and the weak are weakened further."
Published by Globes, Israel business news - en.globes.co.il - on January 17, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.