Israeli Government's Tax Plans Under Fire

by Amanda Banks, Tax-news.com, London

22 May 2001

The Israeli Minister of Finance, Silvan Shalom, and his team have formulated a tax reform plan which has attracted a great deal of controversy, with many critics claiming that the proposal is more of an 'anti-reform' that will benefit the rich and spell the demise of any hopes for a decent tax system.

The tax plan consists of two stages. The first - which is due to be implemented as soon as possible - includes measures such as the introduction of a capital gains tax levied at 20%, a 10% tax on some savings funds, a 25% levy on employee options and the abolition of property sales tax. It also proposes to impose differing tax rates on international taxation, the high-tech industry and the capital market. The second stage calls for taxes on stock exchange profits and retirement accounts as well as recognising the interest on mortgage payments as an expense for tax purposes.

According to the Israeli press, many political observers have condemned the plan as 'absurd and dangerous.' In an interview with the Globes Business news service, a group of tax experts including some state officials, said: 'The plan is biased toward the wealthy and special interests. It ignores wage earners and misses the chance to reducing the tax burden on labour.' They also argued that measures such as the tax on mortgage payment interest and the property sales tax abolition are 'the height of hutzpah and a gift to the rich.'

The Finance Ministry is expected to deliver its plans as part of a package of two alternative proposals some time this week to Prime Minister Sharon. The second alternative to the two-stage tax reforms is a complex reform of the tax system based on the Ben-Bassat initiative proposed by the Barak government last year. The proposals will then be submitted to the Knesset Finance Committee, the chairman of which, Yisrael Katz, has called for the Israeli government to work more closely with the committee to allow it every opportunity to consider the plans.

Katz told the national press: 'I expect the government to coordinate its moves with the Finance Committee ... [the Committee] will not serve as a rubber stamp for the government. Therefore, it would be appropriate for it to participate in drafting the reform being considered by the Prime Minister's Office and Finance Ministry.'

He added that the Committee has not yet received any communications from the government regarding its proposals but they will be seriously addressed when presented to the Committee for approval.

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