Israel's Treasury cuts tax on beer and hard liquor

beer

The previous tax hikes two years ago have created a flourishing moonshine industry.

The tax on beer and hard liquor is being lowered today. Two years after the alcohol reform increasing purchase tax on alcohol products, and three years after the tax on beer was raised, Minister of Finance Moshe Kahlon announced that he had accepted the recommendations of a professional team, headed by Ministry of Finance director general Shai Babad and including representatives of the Israel Tax Authority, to cancel all of these tax hikes.

Kahlon thereby endorsed the tax rate specified in the original alcohol reform proposed by the Tax Authority. The tax cuts will go into effect today after they are officially announced.

Kahlon said, "After cutting VAT and corporate taxes, we are able to give people more good news for the holidays. We'll continue lowering the cost of living in Israel and making things easier for consumers whenever we can. We intend to continue this trend, and will not hesitate to correct tax distortions wherever necessary to the people's benefit. We're reversing the tax hikes instituted two years ago, which did not achieve the anticipated results, and had negative consequences. This follows a thorough assessment by the Tax Authority, which supports the measure."

The tax on beer was doubled in 2012. Beer with alcohol concentration of over 3.8% (draft/disposable container/reusable bottle) was taxed at NIS 4.33 per liter. This was substantially higher than the prevailing tax rate in Organization for Economic Cooperation and Development (OECD) countries. An examination of the results of the beer tax hike in 2013-2015 showed that doubling the tax had almost no effect on the volume of beer consumed, meaning that the consumers had suffered the tax with no real reduction of harmful drinking. This tax will now be cut by NIS 2 to NIS 2.33 per liter. Beer with alcohol concentration of less than 3.8% will remain exempt from purchase tax.

The team also commented on the tax levied on hard liquor (vodka, whiskey, Arak, gin, etc.). Babad told Kahlon that an examination of the tax hike for 2014-2015 showed that despite the original plan, increasing the purchase tax led to no increase in revenue in real terms. The team also recommended an immediate structural change because of negative developments in the alcohol sector - the development of a moonshine industry producing harmful drinks and the resulting damage to honest producers faced with a sizeable black market, and damage to consumers caused by the tax hike.

In view of this analysis, the Minister of Finance adopted the team's other recommendations, including the immediate reversion of tax rates to the original plan set in 2010 by the Tax Authority and approved by Knesset Finance Committee in coordination with the international economic organizations concerning the proper method for taxing alcohol and its products. The purchase tax on hard liquor is accordingly being reduced from NIS 106.90 to NIS 85 per liter.

Kahlon explained that this decision was returning Israel to the original plan of combating above all the moonshine industry, which uses alcohol unfit for human consumption, out of concern for public health. Due to the intense competition prevailing in the hard liquor segment, it is expected that the tax cut will be passed on to the consumers. The decision will also lower the cost of living and eliminate measures levying heavy taxes on the Israeli public.

The tax cut will supposedly cost the state NIS 250 million in lost tax revenue, but in practice is likely to cost nothing, due to the planned stepping up of enforcement measures against alcohol forgery and smuggling.

Published by Globes [online], Israel business news - www.globes-online.com - on September 8, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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