According to a new study by the Israel Tax Authority, the average income of a household in the top 10% in Israel is NIS 94,000 monthly. This is 42% higher than the NIS 66,000 figure provided by the Central Bureau of Statistics. Whence the difference?
There are three main reasons for the gap. The first is that the Israel Tax Authority figures derive from actual data rather than surveys as in the case of the Central Bureau of Statistics. The data do depend on reported income and tax paid, but they are much more comprehensive than those of the Central Bureau of Statistics and do not suffer from the biases of surveys. The rate of responses to Central Bureau of Statistics surveys has fallen dramatically, from 82% in 2012 to just 43% in 2022.
A second difference is in the definition of a household. The Central Bureau of Statistics defines a household on the basis of participation in expenditure on food. This means that people sharing an apartment, or adult children living with their parents, are considered a household. This is a useful definition in many respects, but that of the Israel Tax Authority is much narrower, and is based on tax returns. Although tax collection in Israel is individual, for various purposes there is also reporting of a spouse’s income, and the joint income is what the Tax Authority defines as household income.
The upshot is that according to the Central Bureau of Statistics there are fewer households, each of which consists of more people, and so, on average, each household earns more. Thus the average monthly income of the eighth decile (i.e., the third highest 10%) is NIS 28,630 according to the Central Bureau of Statistics, but only NIS 23,964 according to the Tax Authority.
The biggest difference, however, arises from the treatment of passive income. The Central Bureau of Statistics does record passive income, but it is very difficult for it to capture the top few percent, whose passive income is very significant. This dramatically depresses the whole sample and results in the 42% gap between the two estimates of the income of the top 10%.
"According to the Central Bureau of Statistics data, less than 10% of the income of the top decile is passive income, whereas according to the administrative data of the Tax Authority passive income represents more than 30% of the income of this decile," the Israel Tax Authority study states. In money terms, the gap is NIS 100 billion between total passive income according to the Central Bureau of Statistics and the total according to the Tax Authority. The gap is mainly caused by the top 1%. Household income in the 90th centile is 10% from capital and 90% from labor. In the 99th centile (the highest), income is 63% from capital and only 36% from labor.
Top 1% pay less tax
According the Tax Authority study, direct taxation in Israel is very progressive. The third decile (i.e., the third from bottom) pays 4.6% tax on its income; the fifth pays 6.2%; the seventh pays 11.3%; the ninth pays 21.6%; and the tenth pays 29%. This does not of course include indirect taxes, such as companies tax, which is difficult to attribute.
This means that the top decile pays 62.9% of all direct tax collected in Israel, even though its share of total income is "only" 45.6%. The two top deciles put together pay over 80% of the direct tax collected in Israel, while the bottom 50% (deciles 1-5) pay 3.8%.
The highest rate of tax is in the 99th centile, which pays more than 30% direct tax on income. But when it comes to the top 0.5%, the rate actually drops to 25%. This is because taxation of unearned passive income is lower than tax on earned income from labor, amounting to only 15-30%, which compares with a top marginal rate of 50% on earned income.
Over time, the rate of direct tax on income has risen slightly. One the one hand, income tax on the same level of income gradually falls in line with the Consumer Price Index, and in the past decade several tax benefits and tax credit points have been added. On the other hand, the pay of Israelis has risen by more than the Consumer Price Index, and the rise in pay is the strongest factor. This led to the fact that whereas in 2014 the rate of direct taxation on income was 19.1%, by 2022 it had gradually risen to 20.6%. In other words, in general, Israelis are wealthier than they were, and so pay more of their income in tax, even in percentage terms.
Published by Globes, Israel business news - en.globes.co.il - on December 8, 2025.
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