Israeli Government Unveils Tax Cut Plans

by Lorys Charalambous, Tax-News.com, Cyprus

16 June 2008

Israeli Finance Minister Ronnie Bar-On has unveiled plans for long-term corporate and personal income tax cuts, as the government seeks to secure economic growth in a period of global economic uncertainty.

Bar-On told a press conference at the Finance Ministry last week that the plan calls for the lowering of the corporate tax rate to 20% by 2014 from the current 27%, while the top rate of personal income tax would fall to 42% in 2015 from the current rate of 47%.

The the biggest winners under the plan will be individuals earning monthly salaries of between NIS7,810 and NIS11,720, who will see their tax rate fall to 17% by 2015, from 26% currently.

While the focus of the program is on the middle class, Bar-On stated that the plan will increase the attractiveness of the Israeli economy, acting as an incentive for working and investing.

He also argued that the tax reductions would reduce "distortions" in the tax system, and he claimed that the Israeli corporate tax rate would be below the OECD average rate by 2014.

According to the Finance Ministry, the the plan is expected to cost the government NIS8.1bn (USD2.4bn) by 2015, and the tax cuts will be partly subsidised by the cancellation of a tax exemption on employer-provided savings plans known as training funds, which in future will be added to an employee's taxable income.

However, this move is deeply unpopular with unions, and the leading labour federation has threatened a general strike if Bar-On does not reverse his proposal to tax training funds - a threat which has blocked previous attempts to remove the tax-exempt status of such funds.

Recommended