For years, the Israel Tax Authority has tried unsuccessfully to abolish the tax exemption on rental income under NIS 5,470 monthly. In the past few years, however, the Authority has gone in a different direction, and has sought to include in the Economic Arrangements Bill that accompanies the state budget a requirement to report rental income even if it is below the tax threshold, in order to obtain a full picture of the rental market in Israel.
The requirement did not make it to the final draft of the Economic Arrangements Bill for 2021-2022, but it has now part of the new bill. "It’s no secret that the exemption on rental income gives rise to black capital, and that we are blind as far as that goes. When I know that up to NIS 5,470 I’m exempt from tax, all kinds of games start. I’ll report NIS 5,470, and that is what will be in the contract with the tenant, but I’ll take another NIS 2,000 illicitly. The exemption creates a negative incentive, and people become creative. The policy makers think that it’s right to keep the exemption on rental income, but here mandatory reporting of rentals needs to come in , even if you are not liable to tax," Israel Tax Authority director Eran Yaacov told "Globes".
It fell by the wayside last time; what are the chances that this time it will pass?
"I think that something has changed, and I hope that this time it won’t fall. I feel and know that the current minister of finance is backing our efforts to deal with black capital, and I hope that this will be the case in the Knesset as well."
The public is not relaxed about the Tax Authority having more information. If I don’t have to pay tax, why should I report?
"Just the opposite. When you have nothing to hide and you have given me the information, you sleep well at night. When I don’t know what’s going on and I’m in the dark about what you have or don’t have, then I have to come to you and send letters. Look, we are now about to send 4,000 letters to people who apparently exceeded the reporting threshold and are not reporting to us. If they give me a report up front, they can sleep soundly. If we continue to be anachronistic and don’t understand that there has been a revolution and that it’s necessary to find a balance between privacy and provision of information then we’ll be left behind."
Published by Globes, Israel business news - en.globes.co.il - on April 9, 2023.
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