Tax Authority to crack down on sharing economy

In a week's time, Israel Tax Authority director Moshe Asher is due to step down, but just before that he has managed to indicate to his successor, Eran Yaakov, the next target in the fight against tax evasion: the sharing economy. "Globes" has learned that this week Asher received a confidential report recommending ways for the Tax Authority to deal with the challenge of taxing this sector.

The essence of the recommendations is legislation that sets a uniform, reduced tax rate on personal income through sharing platforms, up to an annual ceiling of NIS 25,000. At the same time, the Tax Authority is recommended to introduce enforcement measures to root out tax evaders in the sharing economy.

The recommendations were drawn up by a team working underneath the radar in the past few weeks to find solutions to the problems of the failure of people active in the constantly growing sharing arena to report their income, and the bureaucracy and reporting problems faced by those who do file returns.

The term "sharing economy" has become a general and broad (perhaps too broad) term covering a range of phenomena, but they all have the same basis: anyone can make money in their free time using their personal resources and assets. Several Internet platforms have emerged in recent years matching buyers with sellers for a fee. Airbnb facilitates renting of properties; TaskRabbit, Freelancer, Handy, Gigster, Upwork and others facilitate the sale of various kinds of services; Uber does the same for transport; and Waze and other platforms let those driving to and from work find passengers to share costs.

Under taxation law, all income earned by service providers via these platforms, and in the sharing economy generally, are already taxable, in the same way as earnings from employment or a business. The tax on additional income earned a person's spare time using their personal property is at the same rate as on their salary or business earnings. Why then is a special Tax Authority team required to deal with the matter? Why new legislation? Because the Tax Authority seeks to catch income that is currently mostly unreported to it. To do so, it will try to make reporting the income easier, offer a more "attractive" tax rate than the regular rates; and at the same time apply enforcement pressure - campaigns, raids, and covert purchases - to this market to expose the tax evaders in it.

A fixed, uniform tax rate

The team recommends setting a fixed, uniform tax rate of between 15% and 20% of the turnover from services in the sharing economy. This track is intended for private individuals whose income under this heading is not more than NIS 25,000 a year. This is the first test for qualifying for the fixed-rate track: the income test.

A person who chooses to report to the Tax Authority on this track will be required to file a simple return via the Internet of turnover from the relevant activity, and pay the tax deriving from that. "The aim is to create a tax rate that is low in relation to the regular tax brackets, with simple reporting to the Tax Authority, similar to the 10% tax rate imposed on income from renting out a private house or apartment," a Tax Authority source involved in the measure said.

"This is a track with no expense deductions, with a tax rate of 15-20%, and of course anyone who so wishes can file a full return with all their income, expenses and losses, as they can today. But we want to make it simpler and provide a solution for taxation of the sharing economy."

In addition to the income test, the team recommends an occupation test. The uniform tax rate will only apply to private individuals whose income from the sharing economy is not part of their regular occupation or business.

Under the recommendations, anyone who does not pass the two tests will have to report to the Tax Authority in the regular way and pay the marginal rate of tax that applies to them.

In its enforcement measures, the Tax Authority intends to use the Internet platforms that facilitate the sharing economy as a means of reaching those who derive income from it. "We will take a look at the platforms that people use in order to participate in the sharing economy and approach those platforms in order to get to the people," a Tax Authority source said.

Published by Globes [online], Israel business news - www.globes-online.com - on March 8, 2018