Israel Cabinet Approves Real Estate Tax Breaks

by Lorys Charalambous, Tax-News.com, Cyprus

23 January 2002

Israel's Cabinet yesterday approved the Rabinovitch committee's recommendations for a property tax reform which cancels sales tax, reduces appreciation tax, and offers additional breaks to those buying homes. The recommendations are now awaiting approval by the ministerial committee for legislation. The new law would then go to the Knesset within two weeks.

Once the recommendations become law, they will go into effect retroactively from the date of publication, November 8, 2001. In order to extricate the real estate market from its present difficulties, Prime Minister Sharon asked ministers to complete the debate as soon as possible.

"The cabinet decision will serve as an incentive for economic activity and the real estate sector, by creating thousands of new jobs and reducing unemployment," Finance Minister Silvan Shalom said after the government's approval.

Treasury officials estimated the cost to the state (in terms of lost tax revenue) as NIS 250 million if some 3,000 apartments are sold. If about 4,000 dwellings are sold due to the new measures, the reform will pay for itself.

Most of the committee's recommendations involve elimination of property sales tax and a series of tax breaks for 2002-2003. The tax incentives include lowering the property appreciation tax rate to 25%, which is currently at 50%. Additionally, potential new home buyers entitled to Housing and Construction Ministry subsidies will receive further breaks in purchase tax. The proposal would reduce overall purchase tax from 5% to 4.5%.

Yehuda Segev of the Contractors Association said the measures would not assist in jump-starting the real estate market. "These recommendations are a small step; the main problem is that the sector has been in a recession for quite some time," he told Israel Radio.

Not all of the proposals brought to the committee were recommended to the government: in particular, a proposal to recognize mortgage interest payments for tax purposes was rejected by the committee as being too expensive.

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