A deadlock in negotiations between the state and Israel Electric Corporation (IEC) (TASE: ELEC.B22) workers on taxation of payments to the workers is threatening the reform in the IEC and the entire electricity sector.
Sources inform "Globes" that if no solution is found to prevent taxation of the NIS 5 billion set aside for increasing the workers' pensions when it is deposited, either the reform agreement will be canceled or payments to the workers will have to be increased in order to offset the tax, and electricity rates will have to be raised in order to pay for it. If no agreement is reached by November, the collective agreement signed by the state and the Histadrut (General Federation of Labor in Israel) is liable to expire and the reform will be canceled.
Ministry of Finance sources told "Globes" today, "The Israel Tax Authority should have finished dealing with this a long time ago." Sources involved in the negotiations, however, are arguing that the view of the Ministry of Finance legal advisor is restricting the Tax Authority and preventing a compromise.
Under the collective agreement, 2,200 IEC employees, 23% of the company's workforce, will retire early. It was also agreed to switch 150 senior employees to personal contracts, eliminate the free electricity benefit for new employees, and cut down on the employees' equal representation in disciplinary committees.
The main benefit received by the employees was an addition to their monthly pension. The 9,000 active employees remaining with the company will receive an extra NIS 1,700 per month each in their pension, and the 2,200 employees leaving the company will receive NIS 1,200 extra per month each. The total cost of this undertaking is NIS 5 billion. IEC is to deposit the amount in special insurance policies for the employees in payments through a special account spread over a number of years. Ministry of Finance director general Shai Babad explained that the money to pay for increasing the pension will come from internal streamlining at IEC, with no need to increase electricity rates.
A general problem, however, is threatening to invalidate the agreement negotiated by the state with the Histadrut and the workers. The Tax Authority, which is due to make a precedent-setting decision about taxing the pension supplement, announced that it should be taxed when deposited, meaning that the workers will pay almost 50% when the money for the savings plan or policy is deposited, not when the pension is received.
In order to allow the planned signing of the collective agreement, Babad proposed an arrangement with the workers and the Histadrut in which the money deposited in a worker's policy would not constitute a tax event for the worker; only the payment of the pension allowance will be a tax event. Ministry of Finance legal Advisor Adv. Asi Messing, however, argued that this arrangement violates the principle of equality, and must therefore be legislated by the Knesset. The state is very concerned about enacting legislation in the current Knesset, especially because it will be interpreted as a special benefit for the IEC workers.
IEC workers committee chairperson David (Miko) Zarfati made it clear that the agreement would be invalid if the pension supplements for the workers were gross, not net. It is believed that if the money is taxed when deposited, the workers will receive pensions of up to 50% less than was promised to them. Another possible solution to the dispute is substantially increasing the provision by the company for the workers' policies, but this will mean a significant increase in the electricity rate in order to pay for the additional provision.
Published by Globes, Israel business news - en.globes.co.il - on October 24, 2018
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