Israeli PM Supports Tax Cut Plan

by Lorys Charalambous, Tax-News.com, Cyprus

23 May 2005

Speaking last week, Israeli Prime Minister Ariel Sharon announced that he supported proposals by Minister of Finance Benjamin Netanyahu for cuts in company and personal taxation.

Under Netanyahu's plan, corporate income tax will be reduced incrementally to 25% by 2009 and the maximum rate of personal income tax, including National Insurance contributions, will fall to 44% from 49% by 2010. The rate of value added tax will also be cut by 0.5% to 16.5% in June or July this year, with an additional 0.5% cut due in 2007, depending on the state of the economy.

The tax reforms will also seek to unify the income tax rate on interest and capital gains which will entail an increase to 20% from January 2006. Until then, every investment that is currently taxed at 10% will be taxed at 15% on the real net profit. These plans need to be finalised in consultation with the central bank, the Bank of Israel.

Capital gains tax on foreign investors will be eliminated, a move which is set to take effect immediately by emergency order.

However, there will be a more punitive tax regime for the wealthy with a crackdown on tax sheltering and schemes where taxpayers operate through company structures to avoid paying full taxes.

Other tax measures will seek to ease the burden for the least well off, including a proposal to cut National Insurance payments for those earning up to NIS3,500 (US$800) per month. Those earning above this threshold face an increase in National Insurance payments.

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