A joint report published by the Chief Economist’s Department in the Ministry of Finance and the Israel Innovation Authority presents the findings of a comprehensive analysis of the contribution of the technology sector to state revenues in the period 2016 to 2021. The report is based on data gathered specially for the purposes of the study, among them analysis of the payslips of workers in the sector. It examines in depth state revenues related to high tech, including income tax and companies tax, Alongside the report, the Innovation Authority has released a document setting out responses to it and recommendations arising from it.
The study finds that workers in Israel’s technology sector are responsible for more than a third of the income tax paid in Israel. In 2021, the proportion was 36%. It was also found that technology workers are responsible for about a quarter of all tax payments relating to companies and work in the economy. Among other main findings are that 85% of state revenues deriving from the technology sector are from taxes on the pay of employees in the sector, while only 15% are from companies tax. Moreover, according to the report, between 2016 and 2021, income tax collection from high-tech workers rose by 66% in real terms.
In those six years, altogether, high-tech workers paid almost NIS 100 billion in income tax, which, as mentioned, represented over a third of total income tax collected in the period. The average amount of income tax paid monthly by high-tech workers in the period, the study finds, was almost NIS 7,000, more than six times the average for the economy as a whole.
On the basis of the growth in the number of people employed in the technology sector between 2021 and 2023, and the rise in average pay in the sector, the report’s authors estimate that the sector’s direct contribution to state revenues grew in that period.
Furthermore, the study finds that the contribution of the foreign technology companies active in Israel to state revenues is significant, and exceeds their weight in the economy. Although the number of people employed in those companies represent only 20-25% of all employees in the technology sector, and the number of foreign companies is just 0.3% of all businesses in Israel, they contribute more than a third of the total contribution of the technology sector to state revenues, both in work-related taxes and in companies tax.
In the breakdown of population groups, it emerges that, because of the under-representation of certain groups in the technology sector, 57% of the tax payments in 2021 came from the dominant group in the sector - non-haredi Jewish males working in the center of the country. Women pay less than 19% of the income tax in the technology sector. This is below their proportion in the technology workforce, which is about a third. In 2021, female employees in high tech paid income tax averaging NIS 3,058 monthly, six times the average amount paid by female employees in the economy as a whole. In that year, 97.1% of the income tax paid by technology company employees came from non-haredi Jewish employees, and amounted to over NIS 21 billion.
Recommendations: Greater government investment, strengthen under-represented populations
In the light of the findings, one of the recommendations listed by the Innovation Authority is to put an emphasis on continued government investment in research and development infrastructure and in startups. The Innovation Authority recommends state investment in startups working on deep tech, for which private investment is scarce, in order to preserve Israel’s technological advantage.
The Authority also recommends broadening the technology sector’s employment base, by promoting the integration of under-represented sections of the population in the technology workforce - women, Arabs, and haredim - at all stages of education and career. In order to achieve this, the Authority calls on the government to act towards the provision of high-quality education, including the core curriculum, to the entire population of Israel.
As far as the impact of the multi-national companies on the local technology industry is concerned, the Innovation Authority states that, despite the importance of these companies, there is no need to create active policies to increase their number. At the same time, it recommends examining ways of removing obstacles to important multi-national companies that are not yet active in Israel.
The Innovation Authority also recommends improving the data on which policy is based. It says that the gathering of management data should be expanded, and their quality and timeliness should be improved, and that a set of management data on the technology sector should be created in accordance with the recommendations made by the committee of experts to the Central Bureau of Statistics last year.
Published by Globes, Israel business news - en.globes.co.il - on August 13, 2024.
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