Tax dispute leaves US military aid stuck in Israeli customs

Haifa Port Photo: Osim Iniun

Aircraft parts, ammunition, and missiles are reportedly among the items stuck for weeks in Israeli ports and unable to reach Israeli army units.

Large consignments of weapons and parts, which are meant for use by the Israeli army and security forces, have been stuck for weeks in customs warehouses at Haifa and Ashdod ports as well as Ben Gurion airport, due to a dispute between the Ministry of Defense and the Israel Tax Authority.

The consignments are part of the $3.8 billion annual US military aid to Israel and include aircraft spare parts, explosives, missiles, trucks and more, which were procured by the Ministry of Defense delegation in New York. Some of the equipment stuck in the Israeli customs warehouses includes components and raw materials meant for Israel's defense industries.

Sources inform "Globes" that the crux of the dispute between the Ministry of Defense and Israel Tax Authority concerns VAT payments on the imported defense equipment. The Israel Tax Authority, defense sources claim, is demanding immediate payment of the 17% VAT in contravention of procedures over the years, which allowed the Defense Ministry to pay VAT well after the consignments were released and already operation in the various IDF and security forces units.

A defense source told "Globes," "There has never been a situation in which the IDF has had to wait for equipment sent to it from the US. For decades there has been an orderly mechanism regarding VAT payments on these consignments that allowed payments three or four months after the army received the goods. Somebody unilaterally decided to change the rules without coordinating matters with the Defense Ministry and so we've reached this situation."

The source added, "For the most part these consignments are huge and cost a lot of money and nobody has the tools to cope with the quantities and amount of information related to them - and so it would be better for all sides to release this equipment and settle accounts later. This equipment includes spare parts for combat jets, vital ammunition and more - and it is inconceivable that it should be held up for so long because of what seems to be power struggles.

The Israel Tax Authority said, "In January 2018, the State of Israel put online a new foreign trading system called 'World Gateway.' Consequently all foreign trading organizations including the Ministry of Defense are required to streamline and transfer taxes digitally. As far as is known, the Ministry of Defense is organizing itself and transferring the taxes according to instructions."

The Defense Ministry said regarding the delays in goods at the ports, "We are talking about a decision by the Tax Authority. The Ministry of Defense is studying the significance of the decision and together with all the bodies in the defense establishment is holding a dialogue with the customs management. This is to comply with, on the one hand, the new demands, and on the other hand to prevent harm to the operational needs of the defense establishment."

Published by Globes, Israel business news - en.globes.co.il - on April 16, 2019

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

Haifa Port Photo: Osim Iniun
Haifa Port Photo: Osim Iniun
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