Tax Authority steps up cash transaction limit enforcement

Shekels Photo: Shutterstock

The running-in period of the Reduction of Use of Cash Law is over, and offenders will be subject to heavy fines and imprisonment.

December marks a year since the Reduction of Use of Cash Law came into force, and the expiration of the law's running-in period. Business owners and those paying them will soon be subject to fines and prison terms for violations of the law.

Since the law came into force in January 2019, the Israel Tax Authority has conducted over 17,000 audits of various businesses. The audits revealed 2,600 violations of the Reduction of Use of Cash Law, only 412 of which were violations of the provisions restricting the use of cash. In other words, most of the businesses examined did not receive cash proceeds beyond the NIS 11,000 limit stipulated in the law.

A wide variety of violators were caught: lawyers, accountants, dentists, and cosmeticians. Many of them did not know exactly what the law required, or simply did not regard it as important. For example, in an audit of a dentist in Jerusalem conducted last month, no documentation of means of payment was found for NIS 78,000. An audit of a car rental business in Jerusalem conducted in October found an open check for NIS 70,000.

The Reduction of Use of Cash Law is one of the dramatic changes that took place in the economy in 2019. The law, which became effective on January 1, restricts the use of cash above a specific ceiling. The law resulted from the conclusions of the Committee on Reducing Use of Cash in the Israeli Economy (the Locker Committee)

According to the OECD, the volume of unreported capital in Israel is estimated at 6.6% of GDP. In 2010, the World Bank estimated the global shadow economy at NIS 200 billion and the resultant loss of tax revenues at NIS 40-50 billion a year. These numbers are large, but it is impossible to truly quantify unreported capital.

The law limits the use of cash to NIS 11,000 in a transaction for a business and NIS 50,000 for private individuals. The law also sets graduated levels of financial sanctions for a business, and criminal fines for someone who is not a business. Sanctions apply only to the amount paid in cash. The law also limits the use of checks.

The law establishes several exceptions to which the cash ceilings and restrictions do not apply. The law does not apply to state authorities exempted by the minister of finance, or to a cash payment between relatives that does not constitute payment of wages. In addition, the provisions of the law will not apply to an interest-free loan fund giving or receiving a cash loan, donation, or gift, under an administrative order valid for two years from the date on which the law was published in Reshumot (the State of Israel's official gazette) or until a law regulating interest-free credit funds takes effect, whichever comes first.

The law also provides an "adjustment period" or "running-in period" of nine months during which no financial sanctions will be imposed on lawbreakers; a written warning will be given (except for repeat violations).

This period recently expired, and the state began an extensive campaign to remind the public of the new penalties that will be enforced on lawbreakers - fines and criminal enforcement with imprisonment of up to three years. Following the expiry of the running-in period, Tax Authority director general Eran Yaacov told "Globes," "A large proportion of the public understands the provisions of the law. The conduct of businesses has changed, including a switch to payment via credit card and checks. A week ago, we launched the media campaign designed to issue a warning before beginning to levy sanctions on lawbreakers. We expect the trend towards compliance with the law to grow."

Yaacov added, "Enforcement by the Tax Authority is now being stepped up in both imposition of sanctions and stronger enforcement and in the number of audits, with more income tax inspectors and VAT auditors conducting such audits."

The purpose of the law is to reduce unreported capital and aid in the struggle against criminal activity, including serious crime, financing of terrorism, and tax evasion. Is it achieving its purpose?

Adv. Uri Goldman, a representative on the round table committee with the Tax Authority, who also represented the Israel Bar Association on the Knesset committees when the law was enacted, says, "The Tax Authority, the Supervisor of Banks, the Capital Market, Insurance, and Savings Authority commissioner, and other state agencies, are supposed to show the Knesset Constitution, Law, and Justice Committee that the law really works, and that the use of cash in the market in Israel has really been reduced. Representatives of the banks will again attend meetings of the Committee and rub their hands in satisfaction, because the less cash used in the market, the more commissions on the use of their products the banks receive."

Goldman adds that a great deal of cash in private hands is still circulating in the market for the simple reason that it cannot be deposited in banks and brought into the legal money reporting cycle. "Although the banks, together with the Bank of Israel, were partners in promoting the law, they are making it very difficult for the public to put their cash into the banks, in particular large sums, even if the money is legal and has been saved by someone during his entire lifetime. The banks' excuse for not accepting cash is not just the Reduction of Use of Cash Law, because they are afraid of claims, but regulations such as the Prohibition on Money Laundering Law (people who saved money in cash during their lives did not think that they were supposed to document every shekel). The banks are therefore pushing cash into circulation in the market."

Adv. Jack Blanga, CPA is also critical of the law. He says that it lacks teeth against criminal groups intent on keeping their transactions below the radar - the very parties he would like to see caught. "The Reduction of Use of Cash Law is only a start at bringing order into the handling of cash and doing a proper job of tracking cash payments and proceeds. It reduces the possibilities of tax evasion to some extent, but it will be a long time before we see a reduction in the substantial amount of cash through which most of the unreported capital in the economy circulates," he says.

Published by Globes, Israel business news - - on December 3, 2019

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

Shekels Photo: Shutterstock
Shekels Photo: Shutterstock
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